Icahn, the Turncoat

Maybe you can teach an old dog new tricks.

Mere weeks ago, famed activist investor Carl Icahn launched a proxy slate to rival the current Yahoo! (Nasdaq: YHOO  ) board roster. Yesterday, he told Reuters that the mostly dead combination with Microsoft (Nasdaq: MSFT  ) might not be the best way forward after all. Thanks for coming to your senses, buddy, though it is a bit late in the game.

Yahoo!'s recent advertising partnership with market leader Google (Nasdaq: GOOG  ) seems to have changed the game entirely. Even though the ink is still drying on the deal, the mere announcement put a 15% hurt on Yahoo!'s stock. Depending on how far Icahn got in his quest to gain leverage in the Yahoo! camp from the recent FTC clearing, his stake in the company lost between $150 million and $375 million of its value overnight. Ouch.

So the crafty investor is looking for ways to regain the value he lost, and pumping up the Google deal might just be the ticket.

I do think the Google deal was a smart move, because Google has proved that its AdSense/AdWords platform can squeeze more value out of Web traffic than can pretty much any alternative you'd care to mention. Thus, going with that solution at least in part should improve Yahoo!'s cash flow very quickly.

The critics, among them the Icahn of old, think that such a deal kills the value of Yahoo!'s own in-house ad platform, affectionately named Panama. That may well be the case, but it's a price worth paying for breathing new revenue-generating life into the Yahoo! search engine.

Guys -- forget about Panama and instead refocus your efforts on what makes Yahoo! great: a massive audience with huge social-networking potential, not to mention one of the most powerful brand names in the industry. Feel free to outsource everything that isn't core to these operating concepts.

So Icahn's flip-flop could mean one of two things: Either he's finally come to his senses and seen the light, or he's desperately trying to inflate the public opinion of a deal he doesn't truly believe in himself. But it doesn't matter. His words and actions hold the same power regardless of the motivation, so either way, current shareholders win.

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Fool contributor Anders Bylund is a Google shareholder but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure wants a dog, a plan, a canal: pagoda!


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  • Report this Comment On June 17, 2008, at 2:11 PM, sweetrevenge2008 wrote:

    Many people have formed a bad impression of what Jerry Yang has been doing to and for the Yahoo Company, including myself! But, all in all, there does seem to be good points being made in this madness.

    Jerry and his running partner David, started the company while graduate students and they did it with the purpose in mind of creating something new and interesting for the internet and computers, and even though Jerry has managed to screw some things up roayally, especially the MSFT deal, according to the shareholders and Icahn, you must remember this: Yahoo was started by Jerry And David, and even though they have gone public with their company, it is still their company and they are entitled to do what they feel is best for not only the company but the employees as well, regardless of what the shareholders want to happen or believe. The shareholders of yahoo stock are not interested in what is good for yahoo or the employees, the only thing they are interested in is making lots of money on their investment in yahoo, NOTHING MORE! If yahoo was my company and I was faced with the same set of problems that Jerry now has, I would try to muster up all the available funding that I could and buy the stock back from the investors, then take the company off the public block and run it private. I would retain all the current bsuiness deals that we have already made and rebuild the entire company without any financial support from shareholders. This is what I would do to save my company from the sharks!

    Give him some credit, people!

  • Report this Comment On June 18, 2008, at 2:44 AM, williambanzai7 wrote:

    Mr Yang is of Asian/Chinese descent. Anyone who is familiar with this cultural milieu, knows the importance of saving “face”.At this point Yang’s face is being mopped allover town. He probably spends most of his time sulking about this. Don’t underestimate the impact of this seemingly trivial tidbit on the motivations of this man. He does not give a tinkers cuss about what his shareholders think. It is all about face. Microsoft surely know this and are best served by waiting quietly with arms open as Yang self destructs.

    As for Mr Icahn, he is not a charitable institution, he started out as a greenmailer, then restyled himself as a corporate activist. He may serve a useful function, but in the end he is in it for a profit just like everyone else. Was it him who said "If you want a frined buy a dog"?

  • Report this Comment On June 19, 2008, at 6:04 PM, pirate1972 wrote:

    Dear Carl, now he's the shareholder's savior instead of the stockholder raider!

    No flip-flops here!

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