Yahoo Inc reached a compromise with billionaire activist Carl Icahn, agreeing to give him three board seats to settle a fight for control of the Internet company.
The board will expand to 11 members and current director Robert Kotick will leave, Yahoo said today in a statement. Icahn, 72, will join the board, while the other seats will be filled by two people from a list of nine candidates recommended by Icahn.
The agreement hands a victory to Jerry Yang, the Yahoo chief executive officer that Icahn had pressed to oust. Reached two weeks before a shareholder vote on the dissident slate, the pact leaves Yang in his job even after Icahn blamed him for botching takeover talks with Microsoft Corp.
"Icahn didn't have the vote," Sanford C Bernstein & Co analyst Jeff Lindsay said in an interview. "The large institutional shareholders were more in favour of keeping the current management structure."
Investors weren't so much impressed by Yahoo officials as they were concerned about the alternative, said New York-based Lindsay, who expects Yahoo shares to perform in line with the market. Shareholders didn't want to sell the search business to Microsoft and leave an "unknown" slate of directors running the rest of the company, he said.
Sunnyvale, California-based Yahoo fell 30 cents, or 1.3 per cent, to $22.15 in trading before exchanges opened after closing at $22.45 on the Nasdaq Stock Market July 18.
Microsoft spokesman Frank Shaw and Icahn representative Susan Gordon didn't immediately respond to calls seeking comment. Yahoo representative Brad Williams declined to comment.
Trading Insults: The two sides traded barbs as late as last week, suggesting a deal wasn't likely. Yahoo accused Icahn of trying to "coerce" management into a sale and called his plan to split the businesses "ludicrous", and he retaliated by saying Yahoo tried to "distort, omit and twist events and facts".
Icahn owns about 5 per cent of Yahoo's shares outstanding, which would make him the second-biggest institutional investor, according to data compiled by Bloomberg. Capital Group Cos is the largest, with units holding approximately 17 per cent. Legg Mason Capital Management Inc, the third-biggest, said last week that it would back Yahoo's current board in an Aug 1 vote.
Microsoft, based in Redmond, Washington, first bid to take over all of Yahoo for $31 a share, or about $44.6 billion, six months ago. Yahoo rebuffed that offer and a sweetened bid of $33, prompting Microsoft to abandon its pursuit in May.
Icahn's Involvement: Icahn entered the fray after talks collapsed, saying the two need each other to take on Google Inc., which handles almost three times as many US Internet searches as Yahoo. Spurred by Icahn, Microsoft began trying to buy Yahoo's search business, with Yang rejecting the latest offer less than 10 days ago.
This year, the activist investor also pushed mobile-phone maker Motorola Inc. to include him in its board, along with two of his nominees. Motorola announced plans in March to split off its unprofitable mobile-phone business after lobbying from Icahn.
Icahn also successfully pressed for the sale of vaccine developer MedImmune Inc. to AstraZeneca Plc last year for about $15 billion. He also helped BEA Systems Inc. and Oracle Corp agree to an $8.5 billion takeover.
The investor has earned billions as a corporate raider, including the 1985 takeover of Trans World Airlines Inc. He made $893 million trying to break up RJR Nabisco Holdings Corp in the 1990s.
