Shareholder launching fight against Yahoo

Kicking off a potentially bruising corporate battle, billionaire investor Carl Icahn is reportedly starting an effort to unseat Yahoo Inc.'s board to pressure the Web giant to restart takeover negotiations with Microsoft Corp.

He plans to nominate a slate of 10 directors to replace Yahoo's board before the end of Thursday, according to news reports.

The move is intended to be a sharp rebuke of Yahoo's current directors, who unanimously rejected Microsoft's unsolicited $47.5 billion acquisition offer. Microsoft abruptly abandoned the bid May 3 after the two sides were unable to agree on a price.

Many big investors blamed Yahoo's board for failing to sign off on a deal that they considered in their financial interest. Icahn, who has reportedly amassed 50 million -- or about 4 percent -- of Yahoo shares in recent days, will no doubt tap into the disenchantment to pressure the company's board to return to the bargaining table.

Shareholders will be able to decide between re-electing Yahoo's current board and Icahn's slate at the company's annual shareholder meeting on July 3, in a process known as a proxy contest.

A Yahoo spokeswoman declined to comment, as did Icahn, who operates a New York investment company.

For Icahn, targeting Yahoo with his investor activism -- or corporate raiding, depending on the perspective -- is a risky move. It's unclear whether Microsoft is still interested in acquiring the Sunnyvale, Calif.-based Web portal, which has a sizable audience but is in a financial slump.

A Microsoft deal likely would provide the quickest financial return for Icahn, whose investment in Yahoo is valued at around $1.3 billion, according to The Wall Street Journal. Absent that, he may have to wait while Yahoo completes an overhaul to its business, which could take years, if it happens at all.

Icahn is legendary for twisting the arms of reluctant corporate boards to fix their businesses or put their companies up for sale. In some cases, he uses his power of persuasion as a big and very vocal investor, while in other cases he gains seats on the board that he then fills with allies.

Last year, Icahn pushed business software maker BEA Systems Inc. to return to the negotiating table with rival Oracle, whose overtures had initially been rebuffed. The two sides eventually agreed to a sweetened $8.5 billion deal that was finalized last month.

Motorola Corp., the mobile-phone maker, reached a settlement with Icahn after he sued the company for documents that he said would show that it was lax in oversight. The deal allowed Icahn to name two directors to Motorola's board and have significant sway in the spinoff of its mobile device business in exchange for a promise by Icahn to refrain from starting a proxy contest.

Robert McCormick, chief policy officer for Glass Lewis & Co., a proxy advisory service, said many companies, rather than face losing a proxy battle, settle with the instigator by offering a few board seats to the dissident. Companies, in such cases, can ask for volunteers to leave the board or simply add seats.

Whatever the case, McCormick said: "Yahoo can no longer breathe a sigh of relief that the Microsoft ordeal is over. Any contest is going to be distracting, expensive and time-consuming for both sides."

Jim Safka, chief executive of Ask.com, the Oakland, Calif., search engine, said that Yahoo risks falling behind even further in search and other areas while it dukes it out with Icahn.

"Uncertainty paralyzes companies," he said. "When you're a fast-moving media company, that's the kiss of death."

Yahoo is still exploring alternatives that are intended to make it stronger as an independent company, including a deal to outsource at least some of its search-engine advertising to rival Google Inc. Such an agreement probably would bolster Yahoo's finances because Google's ads generate more money than Yahoo's, although a partnership has raised serious antitrust concerns and is under review by the Department of Justice.