Yahoo chairman's response to Icahn leaves possibilities open

Roy Bostock had every opportunity to simply just say no to Carl Icahn, whose open letter yesterday launched his hostile takeover strategy. But instead the Yahoo chairman wrote a candid, curiously unsolicited history of Microsoft's walkout.

It was not an emphatic denial of Yahoo's wish to be acquired that its chairman, Roy Bostock, transmitted to investor Carl Icahn this morning, by way of the rest of the world. It was a rejection of being acquired by Microsoft, certainly, though Bostock's response to Icahn's suggestion yesterday of nominating a powerhouse team of alternate directors was, at best, tepid.

"A fair-minded review of the factual record leads to one conclusion: that Yahoo's ten-member board, comprised of nine independent directors along with Yahoo CEO Jerry Yang, remains the best and most qualified group to maximize value for all Yahoo Stockholders," Bostock wrote. And that was literally the end of his review of Icahn's suggested slate, which includes such notables as John Chapple, Frank Biondi, and Mark Cuban, before going on to what he must have seen as more pressing business: painting Microsoft as a timid and unsatisfactory would-be partner.

Sure, the Yahoo board was willing to consider any fair offer that it felt properly evaluated the company, Bostock went on. But despite all those meetings, there was never really an offer on the table, he said, over and above CEO Steve Ballmer's original $31-per-share offer on February 1.

"The record of our efforts to engage Microsoft in meaningful discussions is unequivocal," the letter goes on. "Following receipt of Microsoft's proposal on January 31, our board of directors has met over twenty times to review Microsoft's proposal and Yahoo's other strategic alternatives. Throughout this process our board kept an open mind and an open ear."

Bostock goes on to describe a meeting that took place on April 15 between representatives from both companies, where Yahoo's side went so far as to draw up a list of possible synergies between the two firms, advocating a deal. But a request from March 28 for Microsoft's lawyers to come up with a way to overcome the inevitable regulatory concerns such a merger would face. Come next January, the US will have a new president who will -- regardless of which party he or she hails from -- take a tougher stance on merger and acquisition oversight, provided that person keeps to her or his promises. And in the EU, opposition to such a deal would likely be automatic.

But Bostock claims that Microsoft didn't actually bring any information to the table -- not a legal plan for appeasing the world's regulatory agencies, not a strategy for integrating the two companies, and certainly not what Yahoo's board members and executives were really searching for: an offer at $37 or better.

That absence of a plan suggests that Microsoft didn't really have one, and possibly that its intent to acquire Yahoo in order to integrate Yahoo may not have been genuine.

On Friday, May 2, Bostock said, Yahoo received a kind of an "offer" -- if it can be called that, and he actually did put quotation marks around the word -- from Microsoft, albeit not in writing, at $33. The purpose of the May 3 meeting, he said, was for Yahoo to respond to what was apparently either a phone call or a leaked bit of seeded speculation through The Wall Street Journal, requesting that Microsoft raise to $37. Microsoft's people at that time, Bostock said, walked away from that meeting, saying they were "moving on" -- prior to Ballmer issuing that response through the press the following week.

"In short, Yahoo's board was at every point in this process prepared to enter into a transaction with Microsoft that would maximize stockholder value - and included certainty of value and closing," Bostock wrote to Icahn. "What Yahoo's independent board refused to do was to allow control of this company to be acquired for less than its full value."

He closed by saying he believes the current Yahoo board is competent enough to lead the company, using almost boilerplate language. But his final sentence may be the most telling: "We look forward to a productive dialogue," he wrote, indicating that Yahoo is willing to talk.

With Icahn's dissident proxy slate including individuals who serve on corporate boards already, and who are certainly capable of leading organizations through the long-term, Bostock could be leaving the door open for a deal that does include Icahn, and perhaps $37 or thereabouts, multiplied by so many millions of shares -- but which excludes Microsoft.