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Yahoo Gets Ready To Rumble

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Company adds some muscle in fight against Carl Icahn.

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Yahoo (YHOO) is muscling up in an effort to counterpunch Carl Icahn's planned proxy fight.

The once high-flying Internet search company has added former Viacom (VIA) CEO Frank Biondi, Jr. and John Chapple, former head honcho at Nextel Partners, to its board of directors.

Icahn has pressed Microsoft (MSFT) and Yahoo to resume buyout talks, snapped up about 5% of Yahoo's shares and led the charge to replace the Internet company's board of directors after it turned thumbs down on Microsoft's $47.5 billion takeover bid last May.

Icahn got a seat on Yahoo's board and the company agreed to name two others backed by him. It's unclear if Biondi and Chapple will be able to dilute Icahn's clout and help turn Yahoo around.

Once the industry leader, Yahoo has been eclipsed by Google (GOOG) in search technology, online advertising and market share. Google has become ubiquitous on the Internet and the company's name has become a verb - people frequently say, "Google it" or "Google this guy's name." Clunky old Yahoo remains a run-of-the-mill proper noun.

Last year, Yahoo co-founder Jerry Yang replaced Terry Semel as the company's CEO, but so far efforts to revive the company haven't paid off. Days before Microsoft said it wanted to buy Yahoo last winter, the Internet company's stock fell below $20 a share for the first time since 2003 on news of layoffs and declining profits. Yahoo's stock recently fetched $20.46. The 52-week range is $18.58 to $34.08.

Microsoft's deal valued Yahoo at $33 a share, but the stock skidded as prospects for the buyout faded.

Yang may be making the mistake of many entrepreneurs: Failing to realize that the skills required to conceive and launch a company are different than the talent needed to run it. Microsoft's Bill Gates avoided this trap by hiring top-notch managers to run the company he founded.

Icahn says Yahoo needs an experienced CEO and suggested Jonathan Miller, former CEO at AOL, a subsidiary of Time Warner (TWX). But Time Warner said it would enforce a non-compete clause in Miller's contract and the proposal died.

Icahn paid about $25 a share for his stake in Yahoo and his investment is underwater at the current price of $20.46. This gives Icahn incentive to goose the stock and he's unlikely to stop pressuring Yang.

So, gentle reader, next time you're about to "Google" something, click to Yahoo instead. Call it charity - and unless Yahoo moves quickly, charity may be about the only thing keeping the company on users' minds.
No positions in stocks mentioned.
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