Icahn, Yahoo Spar Over Severance, Microsoft

Billionaire investor Carl Icahn has sent a letter to Yahoo’s (NASDAQ: YHOO) board asking that the company rescind a severance plan for full-time employees he says is the biggest impediment to a takeover deal with Microsoft (NASDAQ: MSFT).

In his letter to Yahoo, Icahn said “[Chief Executive Officer] Jerry Yang and a majority of the board went to inordinate lengths to sabotage a Microsoft bid.”

Icahn used terms like “deceitful,” “self-destructive,” “misleading” and “insulting to shareholders” for moves by Yang and the board to retain employees in a severance plan likely to make a deal with Microsoft more costly.

Citing a “complaint,” the activist investor said Yang engineered a takeover defense allowing full-time employees to quit with generous benefits.

He urged Yahoo’s board to rescind the severance plan, saying that removing the plan would free up $2.4 billion and possibly more, which could be added to a Microsoft bid.

Yahoo fired back, in kind, saying Icahn’s attack on the company “seriously misrepresents and manipulates the facts” regarding dealings between Microsoft and Yahoo and that it relied on allegations from an error-filled lawsuit.

The company labeled as “patently untrue” key assertions contained in the complaint filed by lawyers for two Detroit pension funds who seek to unwind its anti-takeover defenses to force Yahoo to accept a full Microsoft merger deal.

“Notably, you accuse us of turning down a $40 per share offer and ‘sabotaging’ a $33 per share offer,” Yahoo Chairman Roy Bostock said in a reply to Icahn that argues he lacks a credible plan for Yahoo other than selling out to Microsoft.

Icahn’s criticisms stem from arguments made in a legal complaint attacking Yahoo that was unsealed this week and which purports to shed light on Yahoo’s long resistance to Microsoft’s entreaties.

That suit refers to media reports that assert Yahoo rejected a $40-per-share Microsoft merger offer in early 2007 and to a $33-a-share verbal offer Microsoft has said it made early last month that was again rebuffed by Yahoo.

Although Microsoft no longer seeks an outright acquisition of Yahoo, it has expressed interest in a deal involving either search or display advertising.

The Internet company faces pressure from Icahn and other shareholders over its failed talks for a $47.5 billion buyout from Microsoft.

Icahn has launched a
proxy battle against Yahoo, accusing its board of driving Microsoft away, ahead of shareholder meeting.

Yesterday Yahoo rescheduled the meeting for August 1.

Meanwhile, Yahoo has announced online advertising deals with companies such as Wal-Mart (NYSE: WMT) and a media trading platform with Havas Digital.

Separately, Yahoo continues to talk with Google (NASDAQ: GOOG), and could end up striking a deal with the Web search giant if Microsoft and it do not reach terms, a source told Reuters.