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Yahoo! strikes a deal with Icahn

Latest update : 2008-07-22

Hard-nosed investor Carl Icahn has struck a compromise deal with the internet company Yahoo! He gets three seats on the company's board in return for not ousting its management team.

On the eve of a Tuesday release of its latest earning figures Yahoo struck a truce with corporate raider Carl Icahn, ending his fight to oust the struggling Internet pioneer's board.

Yahoo said it will give the billionaire and two of his allies seats on its board of directors in exchange for Icahn withdrawing a slate of nominees he was backing to replace the incumbents.

Icahn bought up nearly five percent of Yahoo's stock in recent months and launched a campaign to overthrow board members he accuses of botching tie-up talks with US software giant Microsoft.

Icahn and Yahoo's board were heading for a contentious showdown at the Northern California firm's annual shareholders meeting on August 1.

"It appears that he realized he couldn't win the proxy fight, and took the opportunity to grab a portion of the board," said Erick Schonfeld, co-editor of the weblog TechCrunch.

"Three seats still gives him a strong position from which to agitate for change."

Eight members of Yahoo's current board of directors will stand for re-election at the meeting and one will not.

Following the meeting, the board will be expanded to 11 members, with Icahn appointed to the board and the remaining two seats filled from a list of nine candidates recommended by Icahn.

"This is a better path than the one they were on," analyst Rob Enderle of Enderle Group told AFP.

"In reality there is a common goal for both groups - to make Yahoo stronger and more profitable. The disagreement was on the path."

Yahoo co-founder and chief executive Jerry Yang said the agreement would allow Yahoo "to put the distraction of the proxy contest behind us" and let the company focus on its "strategy of being the starting point for Internet users and a must-buy for advertisers."

Icahn appeared to have been hunting for the heads of Yang and other top Yahoo executives and could pursue that tact using his influence on the board.

"Will these folks get along or will Icahn lobby for their removal?" Enderle asked rhetorically. "Icahn has a beachhead if he wants to move against them from the inside."

The cessation of hostilities should help stem an exodus of top employees that began after Microsoft offered to buy Yahoo for 44.6 billion dollars in stock and cash on January 31.

Microsoft withdrew its offer on May 3, saying Yahoo refused to budge despite a bid sweetened to nearly 50 billion dollars.

Yahoo later revived talks with Microsoft, with Yahoo rejecting an offer to acquire only its search business and Microsoft saying it is no longer interested in buying all of Yahoo.

Microsoft wanted to buy Yahoo to better battle Google, which claims the lion's share of the multibillion-dollar Internet search and advertising market.

After ending talks with Microsoft, Yahoo announced an alliance with Google to put the Internet search king's expertise to work pumping money from its floundering rival's online advertising.

"I am very pleased that this settlement will allow me to work in partnership with Yahoo's board and management team to help the company achieve its full potential," Icahn said in the statement.

"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."

Yahoo is to announce its second-quarter earnings on Tuesday and investors will be scrutinizing the results for signs the firm's strategy is paying off.

Shares in Yahoo dropped more than five percent through the day to reach 21.25 dollars during after-hours trading in New York, while Microsoft slipped about two percent to 25.33.

Date created : 2008-07-22