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Icahn pitches plan in hopes of Yahoo sale

The Internet company should offer itself to Microsoft for $34.375 a share, the investor writes in a letter.

June 07, 2008|Joseph Menn | Times Staff Writer

Carl Icahn's attempt to play matchmaker between Microsoft Corp. and Yahoo Inc. got a bit more explicit Friday.

The billionaire investor wrote a letter to Yahoo contending that the Internet company should offer to sell itself to Microsoft for $34.375 a share. The surprisingly specific number fell between the $37 that Yahoo Chief Executive Jerry Yang was holding out for on May 3, when Microsoft walked out on deal talks, and the $33 that was the software titan's last offer.

Yahoo issued a statement saying that although it was open to any offer, negotiating in public was "ill-advised."

Microsoft declined to comment, but has said steadily that it is no longer interested in buying all of Yahoo. Instead, the two companies, which are both trying to catch up to Google Inc., have been discussing some form of alliance in the search advertising business.

Those talks are continuing, a person familiar with the matter said. A person close to Microsoft said the Redmond, Wash.-based maker of Windows and Office software wouldn't be receptive to a $34.375-a-share deal.

Microsoft CEO Steve Ballmer disclosed this week that his company had been speaking with Icahn, so the specific dollar amount Icahn floated might have been designed to suggest that he had inside information about what price Microsoft could live with, Yahoo investors said.

The rest of Icahn's letter, which was filed with the Securities and Exchange Commission, was also aimed at assuaging Yahoo stockholders concerned that he did not have a plan for managing the company.

Icahn has nominated a slate of directors poised to run for seats on Yahoo's board at the Sunnyvale, Calif., company's annual meeting Aug. 1.

Yahoo shares gained 8 cents to $26.44, while Microsoft fell 81 cents to $27.49.

If elected chairman, Icahn said he would:

Drop Yahoo's costly severance plan for employees, which would add hundreds of millions or billions of dollars to the Microsoft price.

Hire a new CEO and restore Yang's old title of "Chief Yahoo."

Tell Microsoft that it had better explain how any "alternative transaction," such as the search alliance now being contemplated, could get Yahoo's stock to $33 -- or else forget about it.

Try again for a full sale to Microsoft.

And if that isn't doable, strike a search alliance with Google that can be unwound if Microsoft comes back with a new bid.

A major Yahoo investor who spoke on condition that he not be named said he wasn't surprised that Microsoft had remained at a distance from the flap between big shareholders and Yahoo.

"Microsoft is in the driver's seat," he said. "The closer we get to Aug. 1, the more pressure there is on Yahoo to make a deal."

Analysts agreed, saying they thought that Icahn would succeed in replacing the board if no deal was struck first.

"We believe there is a 60% chance a deal gets done" prior to the meeting, Piper Jaffray & Co. analyst Gene Munster said.

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joseph.menn@latimes.com

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Times staff writer Jessica Guynn in San Francisco contributed to this report.

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