Icahn and Yahoo – Yang is in a No Win Scenario

Implications: Carl Icahn has an impressive track record.  He saved XO Communications and bailed out Allegiance Communications.  He was successful to varying degrees.  He sold off BEA to Oracle. Without his direct involvement the companies would have been marked DOA. Now Icahn is involved in saving Motorola and now Yahoo.

Analysis: In my last Yahoo analysis entitled, Microsoft Pulls Back Offer – Someone at Yahoo Is Going to Have a Lot of Explaining To Do, I had noted that Jerry Yang and his team would be spending the next few weeks explaining what went wrong.  Mr. Yang must be feeling it right about now.  Carl Icahn is the last guy I would want on the opposite side of a negotiating table.

Icahn knows a great deal about restructuring.  Given his background and experience it is unlikely he is going to be a very helpful investor.  As I have noted in past analyses, I support Microsoft walking away from the Yahoo deal.  Yahoo was getting greedy.  It seemed to me that Yahoo did not understand the kind of value Microsoft could bring to Yahoo shareholders.

Yahoo seemed to forget that up until the Microsoft talks, the mainstream media and Wall Street analysts had all but written off Yahoo as a distant Number 2 to Google.  As I write this analysis, Icahn has no assurances that Microsoft will be willing to come back to the table.

However, Carl Icahn brings a lot to the table.  Icahn has a major interest in Motorola and has experience in telecom and the Internet.  If I were Yahoo executives I would be thinking about how to bring shareholder value to Yahoo shareholders and stop worrying about losing their jobs.  Even if Icahn does not pursue a board seat, Icahn will be a thorn in Yang’s side and Icahn will win.

Legg Mason, Yahoo’s second largest shareholder, is already praising Icahn while simultaneously cautioning a potential head butting contest between Yahoo management and Icahn.  Here is what I don’t understand, why would anyone think you are going to win a fight against this guy?  Icahn is not going to stop.  If Yang fights Icahn, Icahn will just keep pressing until Yang sees Yahoo shares drop even further and Yang will forced to deal with falling share prices.  Icahn can wait a lot longer than Yang.

If Icahn gets Microsoft back to the table for the dollar figure Microsoft had offered, Icahn just made money.  However, I kind of doubt any negotiation with Microsoft will end at just what Microsoft wants;  Icahn will make sure he and the other shareholders win something.

Yang is in a no win situation.  If he does not work with Icahn, he will be viewed by shareholders as an obstruction to increasing shareholder value.