Wednesday, June 11, 2008

What Icahn really wants

If Icahn wins at least 5 seats on BOD, the severance package is triggered. Current YHOO board can't change this even if they want to, the way this package has been structured. This has been public knowledge since the YHOO filing on June 2nd. I guess the media is just waking up, after YHOO reiterated this in their employee Q&A.

I'm pretty sure Icahn was aware of this before getting into the proxy fight. So I don't agree that he would back out and start selling because of this reason.

Icahn is quite aware that MSFT needs YHOO desperately and willing to bet on it. The latest hitwise numbers show that MSFT is down to ~5% of search market and approaching in terms of share. The rate at which MSFT search share is going down and looking at its trajectory, it doesn't seem like ~0% is too far from here. They need to do something and desperate times call for desperate measures.

Icahn's options are dated ~nov2010. So I don't think he has an urgencey to sell out and he indicated on CNBC that he is willing to wait it out. Sooner or later MSFT has to come back and make an offer that YHOO can't refuse. Since its almost impossible for Icahn to win, and may not be in his own best interest due to the triggering of severance package, I think he will negotiate with YHOO board to get couple of seats (1 or 2). He might even win those without having to negotiate with YHOO board. This will give him enough leverage to force a negotiation with MSFT in good faith or seriously explore other deals to improve YHOO stock price.

Also after the proxy fight, current YHOO board will be in a better negotiating position, because their board seats would be secure for a year. This would mean that MSFT might end up having to pay ~$35/share with substantial valuation guarantees. What this does to MSFT stock is anybody's guess, but ~$25 is not out of question.

No comments: