In a letter responding to corporate raider Carl Icahn's demands that Yahoo rescind a $2.5 billion severance package and restart merger negotiations with Microsoft, Yahoo chairman Roy Bostock writes:

Dear Carl:


We are in receipt of your letter of June 4th and take issue with its content. Your letter seriously misrepresents and manipulates the facts regarding the recent events pertaining to Microsoft and Yahoo!. You rely on, as “facts,” a series of unsubstantiated allegations from a complaint filed in a Delaware court which grossly misstate the very clear record and position established by the Yahoo! Board. Let me elaborate:



You make reference to our employee retention plan but you significantly mischaracterize its purpose and its effect. In fact, you refer to it as a “Poison Pill” which could not be further from the truth. To set the record straight, the employee retention program is designed to protect the Company’s assets and value during a time of uncertainty. The claim that the plan gives each of Yahoo!’s employees “the right to quit his or her job and pocket generous termination benefits at any time during the two years following a takeover...” is just plain wrong. In fact, our plan has a “double trigger” which means that in order for an employee to be eligible for benefits under our plan, there would need to be a change of control AND the employee would need to be terminated “Without Cause” or resign for “Good Reason.” That means that in contrast to your assertions, an employee who simply quits his or her job would receive nothing under our plan.



The retention plan is intended to help us preserve and enhance shareholder value by allowing Yahoo! to continue to attract and retain the industry’s best talent, and to allow employees to stay focused on implementing Yahoo!’s business strategy. In fact, the plan was adopted in order to protect the value of Yahoo! in anticipation of a possible acquisition by Microsoft which would have resulted in a lengthy regulatory review and a significant period of uncertainty for our employees. In adopting this plan, we believe Yahoo! did the right thing for its employees and its shareholders alike.



This plan was fully disclosed at the time of its adoption and should be no surprise to anyone at this point. It was disseminated to employees, publicly filed and extensively covered by the media. Significantly, as you note, Microsoft had indicated that it was prepared to spend $1.5 billion on retention incentives indicating that they too recognized that the retention of Yahoo! employees would have been critical if there had been an acquisition.



Finally, you significantly misrepresent the events of the recent past. Notably, you accuse us of turning down a $40 per share offer and “sabotaging” a $33 per share offer. Again, this is patently untrue. Yahoo!’s Board of Directors has at all times been focused on maximizing shareholder value. As has been well documented, Yahoo! has engaged in thorough discussions with Microsoft over a series of months culminating in Microsoft’s decision to walk away from a potential acquisition of Yahoo!. Throughout this process, which has included an exploration of multiple strategic alternatives with multiple parties, the Board has repeatedly stated that it is open to any transaction, including a sale to Microsoft, as long as it is in the best interests of shareholders.



You seem to be under the impression that somehow Microsoft will come back to the negotiating table for a full acquisition of Yahoo!. This is puzzling as I know you are aware that we have reached out to Microsoft proactively and met with them many times in the last several weeks. During this period, their message to us and to the markets has been and remains that they are not interested in pursuing a full acquisition of Yahoo!.
Conspicuously absent from your letter is any credible plan for Yahoo! other than a repetition of your insistence that the Company should sell itself to Microsoft. Indeed, your stated view that “the only way to salvage Yahoo! in the long if not short run is to merge with Microsoft” demonstrates that you have no other plan and causes one to wonder what exactly would happen to our Company if you and your nominees were to take control of Yahoo!.



Sincerely,
Roy Bostock



Chairman of the Board

Yahoo's "poison pill" severance package has corporate raider Carl Icahn twisted in knots. In his latest letter to Yahoo's board, he writes:

Details of Yahoo's poison-pill employee severance package, designed to deter a Microsoft aquisition, were revealed with the release of documents from the shareholder lawsuit pending in Delaware courts. Yahoo estimated the cost of post-acquisition layoffs as up to $2.1 billion; raider Carl Icahn, who's trying to force a sale to Microsoft, put the figure at $2.5 billion under the plan, according to the Wall Street Journal. Remarked Icahn, who thinks the details revealed will help him in his question to unseat Yahoo CEO Jerry Yang:

The Federal Trade Commission says corporate raider Carl Icahn should feel free to buy more large blocks of Yahoo shares. At last count, Icahn already owned 4.3 percent of Yahoo. Shareholders allied with his view on the Microsoft-Yahoo merger — that it should happen — now control at least 31 percent of the company. Too bad for them it seems less likely every day that Microsoft CEO Steve Ballmer — or really, chairman Bill Gates — wants to go back down that road.

Yahoo CEO Jerry Yang and Microsoft CEO Steve Ballmer played golf over the weekend, but neither were able to put the ball in the cup, so to speak. The way Yang put it in his answers to Walt Mossberg's questions at the D6 conference yesterday, a merger between the companies now seems as unlikely as it did the day Ballmer first walked away from negotiating table. "Microsoft is no longer interested in buying the company," Yang said. This news will not please Yahoo shareholders Carl Icahn and his allies, who control at least 29 percent of the company, favor a merger, and have started a proxy fight for control of the company's board. In the above clip, watch how Yang intends to deliver the bad news and fight for his job.

Yahoo pushed its annual shareholder meeting back from July 3 to "around the end of July." Since originally scheduling the meeting, shortly after Microsoft CEO Steve Ballmer walked away from merger negotiations, corporate raiders Carl Icahn and a merry band of followers have taken control over 30 percent or more of the company and put forward a new slate of directors for Yahoo's board in hopes of pushing the merger through.

Carl Icahn's allies now control 31 percent of Yahoo. The latest to pile on: Dan Loeb of hedge fund Third Point LLC who plans to purchase 10 million Yahoo shares. [SAI]

Right after Microsoft withdrew its offer, Yahoo shares dropped to $20 and Carl Icahn snapped up 15 million shares. The next day, while Yahoo traded at $24 to $25, Icahn purchased another 15 million. He bought another 29 million or as Yahoo shares hovered around $25 to $26 per share. Icahn purchased the shares using options, so it wasn't obvious right away that a raid was in progress. Prices jumped $2, immediately putting Icahn in the black by at least $120 million. (Photo by AP/ho)

Yahoo execs got a good look at Microsoft's latest plan — Microsoft has proposed acquiring Yahoo's search operations, buying a minority stake in the rest of the business, and selling off Yahoo's Asian assets — and these executives responded "lukewarmly," reports the Wall Street Journal. Need an aside to clarify the motives for each party in this drama? Here goes.

Joining John Paulson in support of corporate raider Carl Icahn's plot to force a Microsoft-Yahoo merger, Texas oilman and longtime Icahn ally T. Boone Pickens purchased 10 million shares of Yahoo. Pickens told CNBC he plans to support Icahn in a proxy fight. By our count, PIckens's addition puts 30 percent of Yahoo shares in control of those favoring a merger with Microsoft — a merger that Microsoft, having been rebuffed the last time, has yet to propose.

Corporate raider Carl Icahn, who has purchased 4.3 percent of Yahoo and proposed a new slate of directors for its board, hates Microsoft's latest plan to purchase Yahoo's search marketing business or otherwise partner with Yahoo to gain control of it. "Microsoft is trying to get the milk without buying the cow, and if you look at Icahn's history, he has never been used that way," one of Icahn's secret stooges told CNBC. "He does not want to see Yahoo pushed into some joint venture with Microsoft and is not going to be used to push Yahoo into it." Icahn and like-minded shareholders favoring a Microsoft-Yahoo merger control at least 29 percent of Yahoo. They do not, however, control Microsoft.

How good is corporate raider Carl Icahn's grip on what's wrong with Yahoo? Two years ago, when Icahn complained to the Financial Times about inept executives at Time Warner, he asked why couldn't they be more like then-Yahoo CEO Terry Semel?

Yahoo CEO Jerry Yang has written two letters in response to Carl Icahn's attempt to take over Yahoo's board. One addresses Yahoo employees and the other its senior management. Neither feature capitalization. Both suggest Carl Icahn's move to take over Yahoo's board "reflects a significant misunderstanding of the facts," which as Yang see's them are that he and Yahoo's board responded to Microsoft CEO Steve Ballmer's merger proposal with "diligence" as well as "knowledge, experience and commitment." Funny how Yahoo's largest shareholders seem to disagree. Both of Yang's letters are copied below.

Adam Dell, Michael Dell's younger brother, is a venture capitalist with some successes under his belt, including HotJobs, which Yahoo bought. He'd make a fine Yahoo board member. So why does Carl Icahn feel it necessary to inflate his qualifications? Dell's biography, as supplied by Icahn, claims that Dell "is a contributing columnist to the technology publication, Business 2.0." Not since 2001, in fact, and the magazine itself closed last year.

Roy Bostock, Yahoo's chairman of the board, has responded to corporate raider Carl Icahn. The one-word version: "Unfortunately." That word sums up so well the letter, Yahoo's hamhanded reply to Icahn, and the whole sorry mess. Bostock has a point: There has not been a written offer on the table since Yahoo rejected Microsoft in February, and so neither the current board nor Icahn's replacements have any proposed sale to consider.

Carl Icahn's slate of replacement directors for Yahoo's board is a list of head-scratchers, except for one name. That's Mark Cuban, the guy who sold Broadcast.com to Yahoo for $5.7 billion in 1998 and used the money to buy the Dallas Mavericks. "Talk about biting the hand that feeds," writes VC blogger Fred Wilson. "It's a downright hostile move for Cuban." Actually, hedging his Yahoo shares so he kept his fortune while founder Jerry Yang's cratered in the dotcom bust — that was hostile. Think Yang doesn't remember that? (Photo by eschipul)

Yahoo board chairman Roy Bostock has penned a response to billionaire investor Carl Icahn's verbose missive, who's trying to replace the Internet company's board with directors who favor a deal with Microsoft:

Yahoo chairman Roy Bostock has a letter from corporate raider Carl Icahn in his inbox. It's more than 3,000 words long. For a version that Bostock and you can read before Icahn completes his raid, see below.

For Carl Icahn to earn a quick profit on Yahoo, snatching up 3.5 percent of the company at around $25 a share and then selling to Microsoft at $33, Microsoft executives have to play along. So far they aren't doing so. They've told Icahn they have "moved on" and do not plan to reconsider a Yahoo merger. Meanwhile, sources familiar with the matter — we're guessing Googlers eager to see Icahn's effort kiboshed — tell the Wall Street Journal that a Google-Yahoo search advertising deal, the one that drove Microsoft CEO Steve Ballmer from the negotiating table in the first place, is now "more likely than not."