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Yahoo Settles With Icahn But What's Next?

Call it an opportunity for a fresh start? Fresh blood? A new deal? A new beginning? That's what sources close to Microsoft are telling me this morning about the settlement over the weekend between Yahoo and corporate rabble-rouser Carl Icahn that will put him and two of his supporters onto a new, expanded board, at the expense of Yahoo director and ActivisionCEO Bobby Kotick, who will be stepping aside.

It's not clear whether Kotick was backing a deal with Microsoft, but it sure appears that way. No matter. He's out, Icahn and two others are in, and along with them three new voices on the Yahooboard who want to push the company into some kind of Microsoft embrace. I suspect that these maneuverings are shrewd by Yang and team, and now the question is how these moves will be received by shareholders.

We already know that Legg Mason's Bill Miller came out in favor of Yahoo's management team on Friday, representing about 4.4 percent of shares outstanding. At the same time, however, Miller seemed to indicate that he's still in favor of some kind of an arrangement with Microsoft, saying that the ones on the table already weren't good for shareholders, and that Yahoo's current board can just as effectively negotiate a deal with Microsoft as a new board. So he's inclined to support those already there.

Still, the analysts I'm talking to this morning seem to indicate that Yang really had no choice but to get this ugliness with Icahn settled prior to the shareholder meeting. If there's frustration out there, it's that Yahoo's board couldn't come up with a way to get this settled earlier than two weeks before the meeting. It was clear from the start that Icahn wasn't going to go away, and with 68 million shares, or 5 percent of the shares outstanding, Icahn was only getting louder.

Yang ran the risk of losing his job come Aug. 1 if he decided to roll the dice and see what investors thought. Doing the back of the envelope math, Yahoo had 14 percent of its shareholders supporting current board members with Legg Mason's news on Friday. Add Icahn's 5 percent and Yahoo's current board is knocking up against 20 percent support. That's pretty good, but has the damage to Yahoo, to Yang, already been done?

And what about Gordon Crawford at Capital Research and his 6 percent of Yahoo's shares. He's been publicly deriding Yahoo's board these past several weeks, but hasn't indicated how he'll vote, or what, if anything, he's doing behind the scenes. The Icahn settlement is a big hurdle out of the way, but Yang had no choice but to settle.

The next big development will come from RiskMetrics ISS, an influential shareholder advisory firm, which will make its recommendation to shareholders on Wednesday. And of course the shareholder meeting a week from this Friday.

Yang isn't out of the woods yet, but he seems to be negotiating his way through. The questions for Yahoo's shareholders, and the company's rank and file: Is this too little too late? Is a deal with Microsoft now a foregone conclusion? And is Yahoo dealing today from an even weaker position than it was in February when all of this became public? I suspect a creative deal involving Yahoo Search, and a spin-out of the company's Asia business, are those foregone conclusions. Now, it's just a matter of time.

Yahoo reports earnings tomorrow, and if this company can't show real growth, real strength, and offer believably optimistic guidance, the company is essentially back where it started: having to strike a deal with Microsoft (that won't be nearly as attractive as the one Microsoft originally offered) and Yang presiding over a company that just can't get out of its own way.

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