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Carl Icahn One Step Closer To Making Yahoo His Homepage


FTC gives billionaire nod to buy up chunks of stock.


Around mid-May numerous press outlets pointed out that legendary activist investor Carl Icahn had essentially set his sites (pun intended) on Internet behemoth Yahoo (YHOO).

More specifically, it was reported that he had nominated his own slate of directors, including himself and outspoken Dallas Mavericks owner Mark Cuban, and penned a letter to the company's chairman, Roy Bostock, in which he said, "The board of directors of Yahoo has acted irrationally and lost the faith of shareholders."

There was a sense that Icahn's well-publicized moves were made more to influence the board -- to enhance shareholder value and to once again open a dialogue with Microsoft (MSFT) -- than to capture it. But now it appears as though Icahn is deadly serious about the endeavor, and that Yahoo's existing board may want to start polishing up their resumes just in case. Per CNBC:

U.S. antitrust regulators have given billionaire investor Carl Icahn the go-ahead to purchase large blocks of Yahoo stock, the Federal Trade Commission said on Friday. The FTC, which routinely looks at large stock purchases, said the moves were approved in a listing that it puts out several times a week.

The Associated Press reports that Icahn has thus far doled out over $1 billion to buy some 59 million shares of the company. According to the same report, he also owns an approximately 4.3% stake and "has sought approval from the Federal Trade Commission to acquire up to $2.5 billion in Yahoo stock, including his current holdings."

The green light from the FTC could be good news for the common shareholder for a couple of reasons:

First, the news comes as another shot across the bow of the existing board and a not-so-subtle reminder that it needs to do something (and fast) to drive shareholder value and the stock price if it wants to keep its job. There's already speculation on the Street that it might try to hammer out some sort of agreement with Google (GOOG) or Mister Softee to prove to shareholders it's giving it the old college try.

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Second, this news also puts additional pressure on the board and management to convince other major institutional holders (perhaps behind the scenes) that it has what it takes to get the job done - without Icahn and crew. The FTC nod may force it to start spending some time on the road and do a little hand holding. This in turn could help prevent disillusioned shareholders from selling, which could help bolster the share price.

Third, even if Icahn doesn't keep scooping up shares, the lingering possibility that he might has the potential to drive the company back to the bargaining table with Microsoft.

On the flip side, Microsoft may have everyone over a barrel. Seriously, what leverage does Yahoo or Icahn really have at this point? With Yahoo's share price waffling in recent weeks (in the $20s), it may be harder for it to fetch anywhere near the $37 that Jerry Yang reportedly wanted for the company. What incentive does Microsoft have to offer a premium at this point?

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No positions in stocks mentioned.

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