Icahn Wants Yahoo to Sell to Microsoft ... Now

In an letter to Yahoo chairman Roy Bostock, billionaire and activist investor Carl Icahn warned the company to stop wasting time and simply offer to sell itself to Microsoft for $34.375 a share, or just under $50 billion. Microsoft had originally offered $33 a share for the company, a bid that was worth about $44.6 billion in early February.

Icahn and the Yahoo board have engaged in a very public and very acrimonious debate over Yahoo's behavior during the Microsoft bid process, which ended with the software giant withdrawing its offer because Yahoo wouldn't budge on the price. Yahoo had been asking for a much higher per-share price than Microsoft was willing to pay, and instituted unprecedented severance packages for all Yahoo employees, a move that dramatically raised the cost of acquiring the company.

"I take issue with your oversight of Yahoo," Icahn wrote in the letter. "Again, I stand by my characterization of your 'poison pill' severance plan and I find it humorous to see you attempt to defend it."

"You keep repeating misstatements in the hopes that by repeating misstatements enough times it will convince your shareholders that these misstatements are valid," the letter continues. "This is simply not true. The egregious magnitude of the dollar amount cost of the plan was never fully disclosed, nor was the email from your compensation advisor calling the plan 'nuts.' While you keep repeating that the severance plan was in the 'best interests of shareholders,' you neglect to mention that the financial cost of the plan could be immense."

Icahn then details what steps he would take if his bid to remove Yahoo's current board is successful. He says he would replace the "poison pill" severance plan with something more reasonable, hire a "talented and experienced" CEO (apparently in contrast to current CEO Jerry Yang, who could remain as "Chief Yahoo"), and then offer publicly to sell Yahoo to Microsoft "in a friendly and cooperative transaction." If that doesn't work out, he says, Yahoo can pursue a non-exclusive Google search outsourcing deal that could be terminated immediately if Microsoft ever showed renewed interest in acquiring Yahoo.

Icahn's letter is compelling and, of course, controversial. But it's unlikely to garner much support within Yahoo's board, as usual. The next step, it seems, is a proxy battle to displace Yahoo's current board. Where that will lead, none can say.

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