May 15 (Bloomberg) -- Carl Icahn, the investor famous for forcing companies to change their strategies, will seek control of Yahoo! Inc. by proposing his own slate of board members, a person familiar with the plans said.
After acquiring a stake in the Internet company, Icahn may name at least 10 possible candidates as early as this morning, the person said. Today is the deadline for nominating directors for election at Yahoo's annual shareholder meeting July 3.
A new board may try to reopen talks with Microsoft Corp., which walked away from a $47.5 billion offer this month after Chief Executive Officer Jerry Yang rejected the bid as too low. Icahn's candidates include Frank Biondi Jr., the former chief executive officer of Viacom Inc., another person with direct knowledge of the matter said.
``I don't know if ultimately getting control of the board is what he wants, or to influence or scare the board into negotiating with Microsoft,'' Youssef Squali, a Jefferies & Co. analyst in New York, said in an interview. ``The founders were not negotiating in good faith. Why? Because they had no intention of selling.''
Icahn, 72, has a stake of 50 million Yahoo shares, the Wall Street Journal reported this week, citing a person familiar with the matter. That's equal to about 3.6 percent of the shares outstanding and would be worth about $1.36 billion, based on yesterday's closing price.
Stock Climbs
Yahoo, based in Sunnyvale, California, gained 49 cents to $27.63 yesterday in extended trading after closing at $27.14 on the Nasdaq Stock Market. The shares have declined 5.3 percent since May 2, the day before Microsoft dropped its bid.
Icahn didn't return messages left yesterday with his assistant Susan Gordon. Yahoo spokeswoman Tracy Schmaler didn't immediately respond to an e-mail.
Microsoft spokesman Frank Shaw said this week that he had no knowledge of Icahn's interest in a board fight. The company has backed away from Yahoo since dropping its bid, he said.
Yahoo, owner of the second most popular Internet search engine, may still persuade Microsoft to bid more than its last offer, said Sachin Shah, a merger-arbitrage analyst at ICAP Securities in Jersey City, New Jersey.
Microsoft had assembled its own slate of potential directors for Yahoo when it was considering a hostile takeover. After Microsoft walked away from the deal, its law firm sent letters to the 10 potential board members and some alternates releasing them from their contracts, a person familiar with the matter said.
Buying Yahoo would have helped Microsoft compete with Google Inc. in Internet searches and online advertising, a market the company expects to almost double to about $80 billion by 2010.
Google's Dominance
Google, based in Mountain View, California, handled almost two-thirds of U.S. search queries in March. That compared with 21.3 percent for Yahoo and less than 10 percent for Microsoft, according to ComScore Inc., a research firm in Reston, Virginia. Google also overtook Yahoo in overall Web visitors last month, ComScore said yesterday.
Third Point LLC, the New York hedge-fund company run by activist investor Daniel Loeb, said yesterday it acquired 1 million shares of Yahoo in the first quarter. The firm also bought 6.85 million shares of Microsoft, according to a filing with the U.S. Securities and Exchange Commission.
A push by Icahn to control Yahoo's board could end up hurting the company by distracting top executives from their focus on operations, said Ross Sandler, an analyst at RBC Capital Markets in New York.
Plan B?
If Icahn gains control of the board and Microsoft doesn't come back to the table, he may be forced to sell off Yahoo's holdings in Asia or strike a deal with Google to boost Yahoo stock, Squali said.
Yahoo's Asian holdings include a 33 percent stake in Yahoo Japan Corp. and 39 percent of Alibaba.com Corp., China's largest online-commerce company. The businesses account for about a third of Yahoo's market value, UBS AG analysts said this month.
Yahoo also tested the idea of displaying Google's ads next to some Web search results to generate more revenue. A formal agreement would initially boost earnings while increasing the chance of customer defections later, said investor Larry Haverty, at Gamco Investors Inc.
Icahn, through friends, approached Microsoft's board about coming back to the negotiating table, the New York Times said yesterday, citing people who have spoken to him. He was told that the software maker had ``moved on,'' the newspaper reported.
``It didn't sound like the discussions between Icahn and Microsoft were as fluid as one would hope,'' said RBC's Sandler. Icahn is ``launching this potential proxy battle without the assurance from Microsoft that they would come back to the table at some point.''
At Motorola, Icahn encouraged the company to split off its mobile-phone business, a plan it adopted in March. He has also backed an effort by video-store chain Blockbuster Inc. to purchase electronics retailer Circuit City Stores Inc., saying last week that he would buy the company himself if Blockbuster can't get financing.
He also challenged drugmaker Biogen Idec Inc., nominating three board members after criticizing that company's sales methods.
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