San Francisco - Yahoo, possibly sensing it may be losing the support of some of its largest stockholders, issued a statement on Thursday defending its role in the failed negotiations with Microsoft.
The letter comes against a background of discontent over the way Sunnyvale, California-based Yahoo handled the talks - several high-profile and normally silent fund managers have publicly criticised the company.
Yahoo chairman Roy Bostock issued a public letter to Carl Icahn, the billionaire activist investor who launched a proxy contest on Thursday to unseat Yahoo's board, accusing Icahn of misrepresenting the events leading up to the collapse of deal talks two weeks ago.
Bostock's letter, which was released on Thursday, says Icahn's proxy campaign "reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal.
Not in stockholder's best interest
"We don't believe it is in the best interests of Yahoo stockholders to allow you and your hand-picked nominees to take control of Yahoo for the express purpose of trying to force a sale of Yahoo to a formerly interested buyer who has publicly stated that they have moved on," Bostock's letter continued.
Bostock's letter focuses almost entirely on the mechanics of negotiations between Yahoo and Microsoft, and makes few references to Yahoo's alternative plans to maximise shareholder value, including a possible deal with internet search giant Google to outsource search advertising, which has received wide press and analyst speculation.
It stresses at several points that the Yahoo board was at all times open to a possible deal with Microsoft, but sought to do proper due diligence on the value the deal would generate for stockholders, and on what it describes as "non-price deal terms", including the likelihood the deal would pass regulatory scrutiny.
"Throughout this period, Microsoft continued to state that it would not raise its offer, and even suggested that it could lower it," Bostock adds.
In the run-up to the collapse of the negotiations, on May 3, the parties were unable to come to an agreement on price. "With Microsoft's offer at $33, and Yahoo's counter-proposal at $37, Microsoft elected, within hours, to walk away from the negotiating table and informed us that they were 'moving on', having never engaged us further on price or on any of the key non-price deal terms," Bostock's letter says.
Acting irrationaly
The letter comes after Icahn officially launched a proxy contest on Thursday to unseat Yahoo's board, unveiling a slate of alternative directors and alleging the Yahoo board had "acted irrationally and lost the faith of shareholders," after rejecting Microsoft's roughly $44.5bn offer.
The number of large Yahoo shareholders who have publicly criticised the internet company for rebuffing Microsoft's approaches suggests that Icahn may have the wind at his sails.
Gordon Crawford (who manages funds on behalf of Capital Group), and Bill Miller at Legg Mason (Yahoo's largest and second-largest stockholders respectively), both publicly vented their irritation after the deal collapsed.
Crawford, a portfolio manager for Los Angeles-based Capital Research, - one of three funds controlled by Capital Group that collectively account for roughly 17% of Yahoo's outstanding equity - said the board drove away "a willing and fairly generous player," adding "all of us are the poorer for it today," according to a newspaper report.
Funds controlled by Legg Mason account for roughly 5%, according to recent regulatory filings. Neither Crawford nor Miller could be reached for comment on Thursday, and spokespeople for both firms declined to comment on whether their funds backed Icahn.
Hoping for agreement
Other shareholders are backing Icahn. Paulson, a hedge fund, acquired up to 50m shares in Yahoo in the first quarter, according to regulatory filings. In a statement on Thursday, Paulson said it would support the Icahn proxy slate, but hoped that Microsoft and Yahoo would be able to come to an agreement, making this unnecessary.
Benjamin J Schachter, an analyst with UBS, said on Thursday he thought the public criticism of Yahoo by fund managers such as Crawford and Miller was "quite telling" from people who tend to criticise companies behind closed doors.
Yahoo shares closed up 61c to $27.75 on Thursday amid a higher overall tech market. Microsoft shares closed up 52c at $30.45.
- Dow Jones