Icahn, Yang make nice, but who wins?

Both had to make concessions, analysts say

Yahoo and Carl Icahn have apparently ended their public acrimony over the billionaire investor's proxy fight to replace the company's board of directors and its CEO Jerry Yang.

As part of an agreement announced early Monday, Yahoo has agreed to put Icahn and two of his nominees on the board, and Icahn has agreed to drop his effort to replace Yahoo's board with his own slate.

It seems that both parties had to concede something so they wouldn't end up with nothing, according to analysts. Yang wanted to keep his job and to keep Yahoo intact, at least for now. And the only way to do that was to stop Icahn from moving forward with his proxy fight.

For his part, Icahn may have thought there was a chance he would lose his proxy battle because he didn't have the support of some major shareholders, including investment firm Legg Mason.

"The chessboard was pretty clear to both sides, and this was basically what looked like a stalemate," said Dana Gardner, an analyst at Interarbor Solutions. "It could have been a longer, protracted fight, and it wasn't clear given that Yahoo's large investors, including the cofounders, were interested in going all the way to a complete change of the board. So the risk factor was something that Icahn had to weigh."

Gardner said Icahn probably recognized that he couldn't win the proxy fight and that it was time to negotiate so he wouldn't lose much money on his initial investment. Icahn is one of Yahoo's largest shareholder, and owns 4.98 per cent of its common stock.

"There's risk on both sides," said Rob Enderle, an analyst at Enderle Group. "Icahn wants a certain level of control and a voice in the proceedings, and Yang wants to keep his job. It looked like Icahn was going to win the proxy fight, but no election is certain until it's over, and from Yang's side it looked like they were going to lose."

So allowing Icahn on the board and giving him some control was better than an absolute loss, Enderle said.

"From both sides it removes the risk that Icahn was facing in terms of a win/loss, and from Yang's position it allows the executive team to stay on board and continue to function, at least for the near term," he said.

Caroline Dangson, an analyst at IDC, said the deal seems to take the pressure off Yahoo, at least temporarily, as it heads into its earnings call tomorrow and its August 1 shareholders' meeting.

"Yahoo can finally breathe for a week and a half," she said. "It's very temporary, but is it a game changer? I don't think it is, but it is good news for Yahoo because now they have something positive to say. I also think that Icahn doesn't seem to be getting the support he needed from Microsoft because this [deal] seems to be a compromise."

Dangson indicated that if Microsoft had been willing to make a deal to buy Yahoo on the condition that Icahn gained control of the Yahoo board, Icahn might not have been so willing to reach an agreement with Yahoo and end his takeover bid.

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Linda Rosencrance

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