Icahn's Eleven (Er, Ten)

With the righteous rage of an arbitrager scorned, Carl Icahn is looking to take over Yahoo so that it can be taken over by Microsoft.  In a letter ostensibly to Yahoo chair Roy Bostock, Icahn says that he believes the board acted "irrationally" and "unconscionabl[y]", and announces that he will be leading a proxy fight on behalf of Yahoo shareholders.

There seems to be a fair amount of positive reaction to this news, as the hostility to Yahoo, its board, and CEO Jerry Yang continues to fester.  I'm a little skeptical.  First, there is Icahn's failed proxy battle at Time Warner.  Sure, he got a face-saving settlement out of it, but former TW CEO Richard Parsons clearly emerged the victor. Icahn and his advisor Bruce Wasserstein suffered career-damaging blowback from that failed endeavor.  (There's also Icahn's failed efforts as a Blockbuster shareholder to get the company to merge with Hollywood entertainment.)  Second, Microsoft has dropped its offer for Yahoo and claims the deal is dead.  Maybe Ballmer is not really out of the game, but as I wrote last week, there are good reasons for Microsoft to walk away.  Will the involvement of Carl Icahn, who is clearly only interested in extracting the maximium price from Microsoft, make Yahoo more enticing?

Finally, there is Icahn's proposed board.

Here's the list of the proposed ten members.

• Carl Icahn.
• Keith Meister.  General partner, Icahn Enterprises, L.P.
• Frank Biondi, Jr.  Former Viacom and Universal Studios CEO.  Icahn proposed Biondi as the new CEO of Time Warner as part of his aborted proxy battle.  The move was not received well.  Here's how one particularly opinionated observer put it: "Icahn's appointment of Frank Biondi to head a slate of directors that Icahn wants Time Warner shareholders to vote for is a huge joke that no one except Icahn, [Bruce] Wasserstein, and Biondi take seriously."  Prior to his TW nomination, Biondi had run a fund that lost 61 percent of its value.
• Mark Cuban.  Co-founder of Broadcast.com, and majority owner of the Dallas Mavericks.  Cuban has a well-known blog, and he's already started blogging his strategic insight as a potential Yahoo director.  Here's a taste: "Is there anything more fun than sitting around, growing your hair, drinking a Bud while listening to Jethro Tull and pondering how to change the balance of power in the search world and unseat Google ?"
• Lucian Bebchuk.  Harvard Law prof and famed shareholder activist.
• John Chapple.  President of Hawkeye Investments LLC; former CEO of Nextel.  Former COO of Orca Bay Sports, which owned and operated the Vancouver Grizzlies.
• Adam Dell.  Managing general partner of Impact Venture Partners, a venture capital firm.  Michael Dell's brother.
• Edward H. Meyer.  CEO of Ocean Road Advisors, Inc., an investment management company.  Former CEO of Grey Global Group, an advertising firm, for four decades; he retired in 2006.
• Brian S. Posner.  Listed as a "private investor" in the Icahn letter, Posner had been CEO of ClearBridge Advisors LLC, an asset management company.
• Robert K. Shaye.  Co-founder and co-CEO of New Line Entertainment.  The company, recently taken over by Time Warner, has a great set of successful movies, including the Lord of the Rings trilogy.  However, a New York Times article indicated last year that New Line had been "beset by rumors of dysfunction and executive change, and bedeviled by a slate of unsuccessful films in 2006."  Shaye also recently directed "The Last Mimzy."

Now, it may be that the make-up of this board is beside the point, because all they will do is agree to whatever Microsoft offer they can negotiate.  But isn't it possible that the board will have to run the company, at least for a little while?  After all, even if you're going to take over the board just to sell to Microsoft, doesn't there have to be a credible threat that you won't sell?  A walking-away point?  And then who will be the CEO?  Frank Biondi?

In his article on Icahn's failed proxy bid at Time Warner, Ken Auletta offered a fairly devastating picture of Icahn's efforts.  Anyone who thinks Icahn can be a force for positive change at Yahoo should read (or reread) it.  Here's an excerpt:

In mid-December [2005], Parsons and Time Warner announced that Google would pay a billion dollars for a five-per-cent stake in AOL and establish a strategic partnership. Time Warner could claim that this put AOL’s value at twenty billion dollars—twice what it had been two years earlier. Icahn attacked Time Warner for “letting the Trojan horse in,” and asserted that Google had somehow—he did not say how—triumphed. But among the audience that counts in a proxy fight—institutional investors, who control the largest blocks of stock—Icahn’s assaults did not go over well. Gordon Crawford, the portfolio manager of Capital Research Global Investors, which has reduced its holdings in Time Warner stock but retains a sizable portfolio, said in a telephone conversation that Icahn was “wrong on his math. It’s not worth twenty-six dollars” a share; he also said that Icahn did not wholly grasp his subject. “I don’t think Carl really understands the media business,” he said. “The final thing is, he doesn’t understand how the Internet works, and, in particular, how the search function is monetized.” Icahn insisted, “I understand how Google makes its money,” but he conceded, “I don’t understand the digital world.” And, despite Icahn’s efforts, Time Warner’s stock did not budge; Icahn was further embarrassed when word leaked out that many of those he had talked to about running on his proxy slate had demurred.

"I don't understand the digital world"?  Ladies and gentlemen, your nominee for Yahoo Chairman of the Board!