Yang and Icahn: an uneasy peace

SAN FRANCISCO — In an odd twist in the battle for Yahoo, Jerry Yang and Carl Icahn must now figure out how to work together.

Icahn once had dismissed the Web portal's co-founder and chief executive as untalented and inexperienced and even had sought to oust him.

Yang, for his part, had portrayed the billionaire investor as a greedy "corporate agitator" who was scheming with Microsoft to flip the company at the expense of its shareholders.

The peace pact between Yahoo and Icahn ends a nasty war of words, but it raises questions on how the two will bury the hatchet after heated, and sometimes very personal, attacks.

Under the deal announced Monday, Icahn and two other nominees from his slate will join the Yahoo board. In return, he has agreed to endorse the Yahoo slate, including Yang.

The compromise immediately won praise from experts, even as some observers were skeptical.

"With the proxy battle behind them and a unified voice in any future communications with Microsoft and potentially others, today's announcement will enable more focus on operational execution, while still being open to possible transactions," analyst Benjamin Schachter of UBS Investment Research wrote in a research note Monday.

But analyst Steve Allen said the peace pact had "shades of the Missouri Compromise," saying that "neither side has won and neither side has conceded defeat."

Corporate-governance law expert Claudia Allen called the agreement "a resolution that makes sense," as it "allows everybody to walk away and say they won in some respects."

"A proxy fight is a proxy fight," added Allen, who's chairwoman of the corporate-governance practice group at Neal Gerber & Eisenberg. "A lot of unpleasant things can be said."

Chris Young, director of M&A research at RiskMetrics Group, concurred, saying: "A lot of the animosity tends to be brushed under the rug after the agreement. This fight was no more acrimonious than a typical proxy fight. ... They are all big boys and girls and they will behave themselves."

Analyst Rob Enderle speculated Icahn is inured to the name-calling that comes with corporate battles, although he thinks the billionaire investor may still aim to get rid of Yang.

"Icahn is used to being called names and I doubt it even fazes him much, and if the company increases its valuation as Icahn wants, he'll likely get along fine with Yang," he said. "Though, I expect, he'll still move to replace the CEO once the new board is put in place unless his inside access changes his view of the executive team."

The proxy battle erupted after failed merger talks between Yahoo and Microsoft, which prompted Icahn's bid to take over the company and resume negotiations with Microsoft.

His campaign was complicated by the fact that Microsoft said it was no longer interested in a full merger but was open to a deal in which it would acquire Yahoo's search business.

While Yang and Icahn have reached a peace accord, the Yahoo board must still deal with disenchanted shareholders, who are upset with the collapse of the Microsoft talks.

In fact, Eric Jackson, an activist shareholder who runs a small investment firm, said that his group is still pushing a "vote no" campaign against four Yahoo directors, including Chairman Roy Bostock, who he said were "primarily responsible for the breakdown in talks with Microsoft."

"We need additional changes than three seats for Icahn to fix this board," he added.

But analyst Crawford Del Prete of International Data called the peace pact "a gutsy and smart move for Yahoo," as it brings Icahn into the company's fold.

"It's easy to throw rocks from the outside, but once you are at the table it's another matter," he commented. "Will it be rocky? Probably at times, but I also think that the person probably most critical of how things have been handled to date now is in a unique position to be part of the solution."

Yahoo recently rejected a Microsoft proposal, endorsed by Icahn, to buy only the company's search business. But the Web portal increasingly has sounded more open to a marriage with Microsoft.

Yahoo has said it would consider a full merger with Microsoft at a price of $33 a share or higher.

Enderle said that Icahn could very well play a key role in future talks, saying that Microsoft can deal with "a board that is now friendlier."

On the other hand, having Icahn on the board also reinforces the view that Yahoo's days as an independent company are numbered for a key reason: Icahn typically doesn't try to take over a company to run it long-term.

Analyst Youssef Squali of Jefferies & Co. took note of Icahn's move to nominate Jonathan Miller, former chairman and chief executive of America Online and a partner in Velocity Interactive Group, who's also a respected Internet-industry veteran.

"We believe that the nomination by Icahn of Jonathan Miller is significant in that he positions him as potentially the next Yahoo CEO in case a deal with Microsoft is not reached and Yahoo fails to execute against its aggressive growth plans," Squali wrote in a research note. "This is an insurance policy for Icahn as Miller would get aggressive about extracting shareholder value through business dealings and asset spinoffs."

Michael Klausner, a corporate-governance expert at Stanford Law School, said the deal "certainly has the feel of an interim arrangement."

"It does not seem likely that Yahoo will stay fully intact or fully independent for the long run with Carl Icahn continuing to be on the board. He generally doesn't do that."

But Young of RiskMetrics said that Icahn could end up being there to run Yahoo for a longer time than expected.