Cease-fire at Yahoo puts Icahn on board

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Jerry Yang has won this battle, but who will win the war? Yahoo avoided an extended proxy fight Monday and bought itself some time, but its stock fell 3.5% as a settlement with Carl Icahn — one that gives the activist investor a seat on the Yahoo board — seemed to make a sale of the company to Microsoft less likely to happen as quickly as some had hoped.

Under the cease-fire — which comes ahead of Yahoo's second-quarter earnings report today — eight of Yahoo's current directors, including CEO Yang, will remain on the Internet firm's board, while Activision Blizzard CEO Robert Kotick will not stand for re-election at the annual shareholders meeting Aug. 1.

Icahn will vote in favor of these directors and an expanded board. In return, he will join the board along with two other directors loyal to him. They will be chosen from a list of nine candidates recommended by Icahn, including the eight alternative directors he previously nominated plus former AOL chairman and CEO Jonathan Miller.

Miller could become a key person in Yahoo's future. The partner in Velocity Interactive Group could well be the heir apparent to the CEO post if Yang remains under pressure and ends up leaving, Jefferies & Co. analyst Youssef Squali said.

"Miller gets a key spot that positions him as Yahoo's next CEO if talks (with Microsoft) falter — an insurance policy for Icahn," he said.

Icahn owns a 5% stake in Yahoo. He had pushed for big changes, but big institutional Yahoo investors, led by Legg Mason, recently expressed support for Yahoo's current board, causing Icahn to lose leverage.

"We are gratified to have reached this agreement, which serves the best interests of all Yahoo stockholders," Yahoo chairman Roy Bostock said. "We look forward to working productively with Carl and the new members of the board on continuing to improve the company's performance and enhancing stockholder value."

Icahn said his goal is to help Yahoo "achieve its full potential." He added: "While I continue to believe that the sale of the whole company or the sale of its search business in the right transaction must be given full consideration, I share the view that Yahoo's valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders."

Wall Street observers said the new board likely will take longer to agree on potential deal offers. Squali said the chance of a Microsoft deal "remains high in our view, but not imminent."

Analysts are expecting second-quarter results from Yahoo at the low end of its guidance range, which could make the firm's long-term targets tougher to reach.

"A soft second quarter could prompt Microsoft to come in with a lower bid for the whole company, possibly in the $28 to $32 range versus our previous expectation of $31 to $35 per share," Squali suggested.

Yahoo shares closed Monday at $21.67. (partialdiff)
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