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Icahn Plans Challenge To Yahoo Leadership

By Peter Whoriskey
Washington Post Staff Writer
Thursday, May 15, 2008

Billionaire investor Carl C. Icahn has amassed a significant stake in Yahoo, one of the world's largest Web companies, and is planning to nominate a dissident slate of directors to the company, a source familiar with the matter said yesterday evening.

Icahn enters the battle for Yahoo and its 137 million monthly Web visitors at a time when several companies in the tech and media industry are jockeying for position to dominate the Internet and all the billions of advertising dollars it could command.

His bid to take control comes little more than a week after Yahoo shook off a takeover attempt by tech giant Microsoft. Microsoft gave up on its bid after Yahoo chief executive Jerry Yang called Microsoft's bid of $33 a share too low. Yahoo had been asking for $37 a share.

But if Icahn succeeds in installing his directors at Yahoo, he will push the company to strike a deal with Microsoft, the source said.

Icahn plans to nominate 10 directors to replace Yahoo's board. The filing deadline is today.

Once Icahn puts his nominees forward, he will be counting on the discontent of Yahoo shareholders to win their election. After Microsoft withdrew its recent bid, Yahoo's stock began to slump back into the mid-$20s, and Icahn acquired roughly 50 million Yahoo shares.

There is no guarantee that Microsoft will be interested any longer, however.

After Microsoft chief executive Steve Ballmer wrote to Yang to say he was rescinding the offer, multiple Microsoft sources said their interest in Yahoo was over for good.

Late yesterday, a Microsoft source reiterated, "We're moving on."

As Icahn has been plotting his move, Yahoo has simultaneously been trying to strengthen its position by striking an advertising deal with Google.

If shareholders are convinced that such a deal offers great promise, they might be willing to stick with the current slate of directors and reject Icahn's bid.

Under the terms of the deal being discussed, Google would run its ads, which are more profitable, along with some of Yahoo's search results.

The two sides have been in "close contact," a source familiar with the negotiations said. But "there are still some parts of the deal that the two sides are pretty far apart on."

While Microsoft and others have suggested that the union of Google and Yahoo would flout antitrust laws, the two sides are confident that the agreement can be defined in a way that would comply with those laws.

Much of the Yahoo-Google negotiations have revolved around business aspects of the deal, such as its length and how revenues would be shared. Another key issue is how much information about Google's preeminent search advertising system would be revealed to Yahoo.

"This [deal] puts a lot of money into Yahoo's system, and that creates real risks for Google," a source familiar with Google's thinking said.

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