SAN FRANCISCO -(Dow Jones)- Word that billionaire investor Carl Icahn was leaning toward launching a proxy fight to unseat at least some of Yahoo Inc.’s ( YHOO) directors could soon prompt Microsoft Corp. (MSFT) to answer a critical question: Has the software giant really “moved on” from its attempt to buy Yahoo?

That question was magnified Tuesday after a source familiar with the situation said the activist investor had acquired some 50 million Yahoo shares and was expected to decide Wednesday whether to launch a proxy contest - even though he didn’t have assurances from Microsoft that it would reconsider buying the struggling Internet giant.

Microsoft withdrew its offer more than a week ago and has since maintained that is no longer considering a deal with Yahoo. But there is no shortage of observers, investors and analysts who believe that Microsoft would return to the table if an activist shareholder such as Icahn pushed Yahoo to revive merger talks.

“Microsoft has moved on, but this changes the facts on the ground. Icahn could be a constructive catalyst in this case,” said Peter Morici, business professor at University of Maryland.

Icahn must move quickly if he decides to launch a proxy fight given that Yahoo has set a Thursday deadline for board nominations. Sources familiar with the situation said Icahn was still not sure whether he would nominate a full or partial slate of candidates if he did attempt to shake up Yahoo’s 10-member board.

Yahoo’s top shareholders lashed out at the board after talks with Microsoft broke down on May 3 over price. Microsoft raised its offer from $31 per share to $33, or $47.5 billion, but Yahoo executives indicated their price was $37.

Shareholders will get their say when they elect Yahoo’s board at the company’s annual meeting on July 3.

Observers were mixed about whether Microsoft executives should signal to Icahn that they were willing to revive their offer. Morici said Microsoft Chief Executive Steve Ballmer should establish communications with Icahn given that he has emerged as a likely ally in this case.

Others suggested Microsoft holds a strong hand and would be better off avoiding any appearances of an alliance with an investor such as Icahn, because doing so would trigger disclosure provisions and could give rise to messy litigation.

“It’s perfectly rational for Microsoft to continue with its current position and wait to see what happens. Is it really necessary for Carl to know what Steve and Bill are thinking?” noted Joseph Grundfest, professor of law and co-director of the Rock Center for Corporate Governance at Stanford Law School.

A source familiar with the situation said several large shareholders reached out to Icahn over the last week and urged him to take the lead in an effort to pressure Yahoo’s board to renew merger talks with Microsoft.

Portfolio manager Bill Miller of Legg Mason Inc. (LM), Yahoo’s second-largest shareholder, told the Wall Street Journal Tuesday that he was eager to see what Icahn can achieve but he wasn’t sure the activist would succeed in getting Microsoft back to the table.

Spokespeople for Icahn and Microsoft declined to comment. Yahoo spokespeople weren’t immediately available.

Grundfest said the situation recalls the battle between Oracle Corp. (ORCL) and BEA Systems Inc., in which Oracle walked away for its initial offer but ultimately reached an agreement with BEA earlier this year after Icahn pushed the two companies back into talks.

“If one believes that history is prologue, then one could look at the spread between Microsoft’s last bid and Yahoo’s last demand and figure that maybe there is a deal to be done halfway between the two.”

Yahoo shares closed up 5.1% at $26.56 on Tuesday due to reports that Icahn was mulling a proxy fight.

Posted by Zoov on 14 May 2008 03:20 am
Filed Under: Business |