Major Yahoo shareholder backs Yang in anti-Icahn campaign

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12:03 pm EDT July 18, 2008 - Apparently after having read and assessed the text of Yahoo's new anti-Icahn Web site, as well as its latest filing with the US Securities and Exchange Commission (detailed below), Yahoo's third largest shareholder, capital management firm Legg Mason, announced this morning that it would be backing Yahoo's current management in its efforts to retain its existing board structure and management.

"After consideration of the relevant facts and circumstances and our fiduciary duty to our clients, it is our intention to vote in favor of the slate of directors proposed by the current Board," reads this morning's statement from Legg Mason's chief investment officer, Bill Miller. "We have met with representatives of the current Board and management, including founder Jerry Yang, several times. We believe the current Board acted with care and diligence when evaluating Microsoft's offers. We believe the Board is independent and focused on value creation for long-term shareholders."

Miller goes on to say he would prefer if Yahoo executives met with Icahn to determine the future governance of the company, before a proxy fight is waged at the August shareholders' meeting.

Legg Mason's stake in Yahoo is much larger than Icahn's, which was only recently acquired. Since shareholder votes scale in proportion to the number of shares held, Legg Mason's vote represents a tremendous obstacle to Icahn's proxy plan -- one that independent analysts are already saying cannot be overcome.

Earlier this week, the capital investment firm indicated it would be interested in a Microsoft takeover of Yahoo as a whole -- not in part -- at $33 per share. It then told Reuters on Monday that it wasn't interested at the time in a partial buyout, saying, "the latest developments to sell Yahoo search to Microsoft [are] unappealing."

Bugs Bunny had a saying: "Of course you know this means wa-ar!" and you knew the fun was only just starting. Yahoo's launch this morning of an all-out lambasting of Carl Icahn shows the rabbit may have a few tricks after all.

As its August 1 shareholders' meeting approaches, Yahoo's case for maintaining its current board of directors and its current growth strategy has transformed in one week's time into a full-scale media campaign, moving entirely from defense to offense. This morning, the company launched its own microsite, in an offensive counter-punch designed to make financier Carl Icahn -- the man currently trying to broker a search business deal between Yahoo and Microsoft -- look like an opportunist and a fool.

The "Proxy Facts" page launches by quoting Icahn's own words, uttered only last month during a CNBC interview, in which he characterized Microsoft buying only Yahoo's search assets as foolish: "It's crazy for this company now to do this alternative deal and give the store away, because obviously, an alternative deal is a poison pill because once you've done an alternative deal and given the search to Microsoft, you don't need Microsoft to buy you anymore."

CNBC's own transcript of the June 4 interview on its early evening "Fast Money" program (compiled from its closed-captioning, so it's a little rough) reveals the part of Icahn's comment that Yahoo did not excerpt, in which he compared this "poison pill" to another: the executive severance package that Yahoo's board hastily put in place, giving themselves massive payouts estimated at $1.60 per Yahoo share held, for leaving the company in the event of a takeover.

"So that would be a poison pill, as bad as this -- in quotes -- 'ingenious contraption' that Jerry Yang put together and called it a severance package, which is nothing more than an impediment," reads CNBC's transcript. "And he [Yang] neglected to say that Microsoft even put aside $1.5 billion for the employees."

During that interview, Icahn definitely showed his continued support for an all-out Microsoft buyout, but did compare a partial business sell-off to what he also called Yahoo's "incomprehensible" employee severance program, which he said was put in place mainly to "entrench" the board and senior executives. So Yahoo is now using that comparison as an illustration of Icahn not exactly knowing what he wants, or at least wanting something one moment and something else the next.

If you're thinking of the term "flip-flop" -- which is now irrevocably linked with 2004 Democratic presidential candidate John Kerry, thanks to a largely successful campaign against him -- that's exactly the term Yahoo used when it launched this media campaign just yesterday.

The company's anti-Icahn microsite today also shows a list of 15 companies for which Icahn sought to gain board membership through share purchases since 2004, revealing that only three of those companies gained in share value between the time one day before Icahn announced his intentions, and July 14. One of those gainers, BEA Systems, was by virtue of Oracle's acquisition of that company, which was completed last April.

"The choice for Yahoo stockholders is clear: Re-elect your experienced and dedicated Board with a clear strategy and a demonstrated commitment to create value for Yahoo stockholders, or turn your Company and its uniquely valuable combination of assets over to Carl Icahn and his nominees and allow Microsoft and Mr. Icahn to dismantle the Company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo stockholders," Yahoo's microsite reads.

In a filing with the US Securities and Exchange Commission yesterday, Yahoo showed its amended shareholders' presentation (complete document available here), which takes a much harder-line approach to combating Icahn's proposed alternative proxy slate than the original version of the presentation unveiled last month.

In fact, the shift of Yahoo's focus for that presentation has shifted, away from Microsoft, which it had earlier characterized as insincere and inexperienced in the online field, and onto Icahn and his alternative slate. Pre-emptively, the new presentation now introduces the key members of Icahn's "dream team," listing the businesses they're involved in on a daily basis, apparently to demonstrate that few of them are particularly skilled with the online world either.

The new presentation also devotes one slide to an evaluation of Yahoo's key online assets in China, Japan, and Korea, where the company is doing very well and, in many cases, has dominant market share according to independent assessments. Yahoo's Asian assets, we learned earlier this week, were the sweetener for Icahn's latest proposed deal, and perhaps what he and Microsoft were truly aiming for in their partial bid for the company the previous weekend.

As the SEC filing also revealed, Yahoo continues to point to the rollout of its revamped display advertising platform -- once touted as irrevocably tied to its search assets -- as still scheduled for the third quarter.

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