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Billionaire Carl Icahn Sets Sights On Yahoo


Will proxy fight over Internet behemoth ensue?


Earlier this month it looked as if Microsoft (MSFT) and Yahoo (YHOO) were going to get hitched. But in a somewhat surprising move, Microsoft ultimately walked away from the table. No matter, because news reports now suggest that the company may have been added to legendary investor and activist Carl Icahn's "favorites list."

CNBC reported (and other major news outlets picked up on the story) that Icahn "is considering launching a proxy fight at Yahoo." It also pointed to sources that said he may have established as much as a 50 million share position in the company. Finally, it added that Icahn did not comment on the matter.

If it's true that Icahn has accumulated a large stake and may be angling for board seats, this may be construed as both good and bad news for the common stockholder.

The good news is Icahn -- assuming these reports are true and that he did capture board seats -- might push for big changes. More specifically, he might hold Jerry Yang's feet to the fire and try to persuade him to enact very large cost cutting measures. You never know, he could also push for talks and a deal with Microsoft. And assuming he did have anywhere near a 50 million share position, one could argue his allegiance would be (or largely be) with the common stockholder.

It's also important to note that Icahn's presence could cause the analyst and investment community to speculate on potential outcomes. In short, it's possible this could drive Yahoo's share price higher.

On the down side, Icahn may do what's best for Icahn. Even if he were to have the common stockholder in mind, his own interest may be his primary concern.

Incidentally, time may not work to the common shareholder's advantage. It often takes a while for Icahn to achieve his goals. Assuming one of those goals was board seats, he could be locked in a battle for many months - and the stock could wane in the interim.

Just look at what went on at Motorola (MOT). It was reported in early 2007 that Icahn was eyeing board seats, yet the fight continued until April 2008 when he finally nailed down two. How did the stock do? Take a gander at this chart.

The point is, even if Icahn were to get involved in the stock there are no guarantees that he will successfully be able to agitate for change, or obtain a seat at the table in a timely manner - if at all.

At first blush it appears that Icahn's interest could be a good thing. However, it's important to note that at this point these reports are just that - reports. It's equally important to note that even if Icahn were successful in obtaining board seats, there's no guarantee he'd help enhance shareholder value.

The stock was up a point and change in trading on Tuesday. In after-hours trading, however, it pulled back.

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No positions in stocks mentioned.

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