Keeping your enemies close

Yahoo! looks to have taken the 'keep your friends close and your enemies closer' approach, and given Carl Icahn and a couple of his accomplices seats on the Yahoo! board.

The move, which was reported yesterday, will head off an outright proxy battle at the Yahoo! AGM and was hailed by both Icahn and the Yahoos! as a step in the right direction. Iin truth that seems to be about all they could agree upon. Behind the smiles, even the press statement from Yahoo! gives away just what a horribly divided mess the company board now represents.

For a start, Icahn has clearly not given up on his desire to see Yahoo!, or bits of Yahoo! sold off, and sold off quickly too.  Given the man's reputation, its hardly surprising that he's still looking to cash in on his investment, and any long term plans that Jerry Yang or Roy Bostock might have for Yahoo! are going to be secondary to that desire. He didn't get to be 18th richest man in the US by playing nice.

On the Yahoo! side of the table, while Bostock and Yang are safe for now, its hard not to see their 'welcoming' of Icahn to the board as a last-ditch attempt to keep control of the company, without a long term plan for dealing with the issue of unhappy shareholders and unwanted suitors.

The press statement makes a nod to 'shareholder value' but all other talk is of their long term plans, in direct contradiction of what Icahn says. The previous actions of the board and their hostile stance dismiss any notion that this is a company that wants to sell off its core business to anyone, let alone a rival like Microsoft. The sheer amount of insults that have already been traded between Icahn and the board will make it difficult for them to move forward. And with Microsoft still so obviously itching to spend some more of its war chest on grabbing a chunk of online market share, its likely the board are going to have to tackle the big issues sooner rather than later.

If Yang and Bostock were really interested in selling, they might be thinking that with Icahn on the inside, fighting Yahoo's! corner, they could bash out a better deal from Microsoft, or maybe Google. But selling just doesn't seem to be on the agenda with these guys.

Going forward, Icahn is likely to want that cash return, and if an offer comes up, it seems certain to mean a boardroom battle. The Yahoo! board has turned down all offers so far, but that doesn't mean that the board is united, so possibly Icahn would be able to win over some of the eight existing Yahoo! board members to his cause.

Beyond that, Icahn is not the only shareholder who was unhappy about the way the board dealt with the Microsoft approach. Maybe another disgruntled institutional investor could force more board changes, either at the AGM, or at an extraordinary meeting in future.

Either way, the Yahoo! board seem to have bought themselves a brief respite from their troubles, and saved themselves from having to fight it out with Icahn in public, but if they think the problem is solved, then they are kidding themselves even more than if they think Icahn is going to turn down the next offer from Microsoft that comes along.