Yahoo And Icahn: If It Thought Microsoft Was Bad...

Yahoo
CNBC.com
Yahoo

It's official: Carl Icahn is stirring up the pot in big way when it comes to Yahoo's uncertain future, launching a proxy war, putting forward his own slate of directors, and pulling no punches when it comes to skewering existing management.

His letter to Yahoo's board is short and to the point, with the most notable comments including: ""It is irresponsible to hide behind management's more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer."

The letter is a lesson in Icahn. If Yahoo thought Microsoft was a pain in the neck to deal with---or not deal with, if you listen to the complaints by Microsoft of Yahoo's aloof negotiation style--just wait 'til Jerry and gang have to sit down with Carl. Yahoo may want to call BEA Systems or Motorola , or a bunch of other companies that have ended up on the wrong side of Carl Icahn's tactics.

I'm not saying that Icahn's entry into all of this, and his $1 billion investment in Yahoo, will lead to an automatic deal with Microsoft, or that his slate of directors will be able to convince Microsoft to return to the bargaining table. But after the fumbling and bumbling about by Yahoo's board to date, I can't see how he can be any less effective. Make no mistake, Icahn has his work cut out for him. He's got to replace Yahoo's board, or most of them, and he's got to woo a prickly Microsoft back into Yahoo's good graces. A deal could get done, but the high-fiving Yahoo board may have cost shareholders some of that premium that Microsoft was willing to pay. The price may come down.

And with Yahoo's poison pill in place, there's little chance that Microsoft will snap up shares on the open market. The plan was adopted in 2001 that limits the stake attainable by a company trying to acquire shares on the open market. As soon as, say Microsoft, acquires 15 percent of Yahoo's shares in a tender offer, its stake is capped there. If a predator company tries to buy more, Yahoo shareholders have the right to buy "extra shares" and diluting the value.

"Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our Board of Directors, our rights plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our Board of Directors regarding that acquisition," according to a Yahoo filing from last year.

Wow. Even more good news for Yahoo shareholders.

The board Icahn is putting forth is an eclectic mix as well: Carl Icahn himself, his top lieutenant Keith Meister, Edward Meyer, Brian Posner, Robert Shaye, John Chapple may all seem like intriguing choices. But it gets interesting when you throw Mark Cuban into the mix, who gained billionaire status when he sold his broadcast.com to Yahoo during the bubble days. Michael Dell's brother Adam is also an interesting choice. Corporate governance expert Lucian Bebchuck could be an even worse nightmare for Yahoo than Icahn himself, and former Viacom CEO Frank Biondi. (Didn't Yahoo just dismiss a Hollywood insider as CEO last year?)

Nonetheless, you couple this competing slate of directors with what promises to be a vigorous no-vote campaign waged by outspoken dissident shareholder Eric Jackson, and it's clear that Yahoo's headaches may only be just beginning. Which might be a good thing. Lots of bloody scalps still trying to heal from all the head-scratching over why the offer from Microsoft, all 72-percent-premium of it, fell apart. Not sure Icahn can get anything done, but there's a whole lot of shareholders praying he can.

Questions? Comments? TechCheck@cnbc.com