What rank hypocrisy! Where's the blame for tapping Yang for the job in the first place? For not pushing him out sooner? And for that matter, for not having a hot-swappable substitute in the executive ranks when Hollywood dude Terry Semel abruptly quit last year? Those are all grave transgressions to which Yahoo's directors ought to confess.

Chairman Roy Bostock should be first out the door. An old-school adman ridiculed within Yahoo as an "empty suit," Bostock has added nothing to the company. And he shredded any remaining credibility by brazenly lying to Newsweek about Jerry Yang's status as CEO, saying he was firmly ensconced in the job even as the board discussed his ouster.

Add to the list investors Ron Burkle, Gary Wilson, and Art Kern, whose ouster I called for earlier this year. Can anyone say what Yahoo has gotten from their collective 26 years on the board?

Corporate raider Carl Icahn, too, should make his stay on Yahoo's board brief and symbolic, a prize won for waging a fierce battle with Yahoo management over its failure to sell the company to Microsoft. He may have been right about Microsoft, but I can't believe he has the company's long-term interests at heart.

And Jerry Yang, who has been allowed to keep his board seat, should resign it. Yahoo needs a clean break from his mismanagement; a lingering presence will only hurt the company he professes to love.

Whoever Yahoo picks as its next CEO should make a priority of mucking out the boardroom; candidates for the job should demand that these six directors offer their resignation before they sign on the bottom line. Otherwise, the job will be untenable.

The rest of the board I'd recommend Yahoo's next CEO keep, at least for the time being. Frank Biondi and John Chapple are too new to pass judgment on; venture capitalist Eric Hippeau and Hewlett-Packard executive Vyomesh Joshi actually have knowledge of the marketplace that's valuable to Yahoo; and telecom exec Maggie Wilderotter is a credible candidate to step in as Yahoo's CEO, should the board choose one of its own.

Michael Eisner stepped down as Disney's chairman after having 43 percent of the votes withheld; Steve Case left Time Warner's board amid a shareholder revolt, and still drew a 22 percent protest. With the correct numbers in, Yang and Bostock's position has changed from comfortable to perilous — showing that votes count in business as well as in politics.

Yahoo's failure-prone four had between 18.2 and 22.1 percent of shareholders withhold their votes for reelection. Board members who met with Valleywag's approval — Eric Hippeau, Vyomesh Joshi, Bobby Kotick, and Maggie Wilderotter — scored between 7.1 and 9.3 percent. Only in corporate America would a passive-aggressive move like declining to vote be deemed "activist." All the same, to those shareholders who sat this one out, we thank you for your fealty.

Yahoo!'s board has been dysfunctional for too long. More changes are needed, which is why I will vote "against" the re-election of Roy Bostock, Ron Burkle, Art Kern, and Eric Hippeau at next week's annual meeting

Jackson's bullet points on "Why I'm Voting "Against" Bostock, Burkle, Kern, and Hippeau," are below.

• Yahoo!'s stock price is at the same level it was 4 years ago. That's a zero % return for loyal shareholders, while the market has gone up and their largest competitor has soared.
• Excessive compensation continues to persist at Yahoo! Last year, the focus was on Yahoo!'s CEO compensation and how it ranked among the highest for Fortune 500 companies, even as the stock had dropped 30% that year. Jerry Yang has agreed to be paid $1 a year since he took over as CEO, yet Yahoo!'s Compensation Committee has continued to pay its outside directors approximately $500,000 per year. Google's outside directors on average receive pay of $250,000 per year.
• Last year, Yahoo! shareholders voted 34 - 36% against the re-election of Messrs. Bostock, Burkle, and Kern (the members of Yahoo!'s Compensation Committee). To put that vote in perspective, remember that Michael Eisner (the year he battled Roy Disney) received 42% of votes cast against his re-election. Yahoo! chose to ignore the will of shareholders and keep all 3 men on. Based on what's occured in these past 12 months, I believe that choice was unwise.
• Kern and Hippeau have served on this board for 12 years. That's too long. It would be next to impossible for anyone to remain "independent" after serving on a group for so long. There are other voices with experience on this board.
• The breakdown in talks with Microsoft still baffles shareholders. The visceral outrage all Yahoo! shareholders felt when discussions broke down with Microsoft on May 3rd still leaves a bad taste in all our mouths as shareholders. This board claims Microsoft never was serious in its buyout offer for the entire company. Yet, they chose not to engage in discussions with Microsoft for 5 weeks after the offer was made - instead, scurrying around to approve a lavish severance package so as to increase the costs to Microsoft of completing the acquisition.

(Photo by Oscalito)

• Yahoo will sell if Microsoft makes a $33 offer.
• Yahoo will sell just its search if Microsoft makes an off ther that "provides real value to our stockholders and resolves the substantial execution and operational risks associated with the separation of our search and display businesses."
• "Mr. Icahn can’t make up his mind about what he thinks will work for Yahoo!" Mostly because he's just in this for a quick buck.
• "Vote your WHITE Proxy Card"

Dear Fellow Stockholder:

The recently-formed Carl Icahn-Microsoft alliance continues to make misleading statements about their plans for Yahoo!. Your Board of Directors believes strongly that the Icahn-Microsoft agenda — as presented to us jointly last week — will destroy stockholder value at Yahoo!, serving only their very narrow special interests, clearly not your interests.

Your Board continues to work to maximize value for you and is taking the following steps to do so:

• Moving forward with our strategic plan and strategies to lead in online advertising — with both search and display;
• Preparing to implement our recently signed commercial agreement with Google that will increase cash flow;
• Continuing to explore other ways to unlock value and return value to you such as unlocking the value of our Asia assets; and
• Remaining open to negotiating a value creating transaction (including with Microsoft) that provides real and certain value — not just the possibility of value.

In contrast, let’s review Carl Icahn’s brief involvement with the Company to date.
Carl Icahn bought his stock two months ago for an estimated average cost of less than $25 per share. He is well-known as a corporate agitator with a short-term approach to his investments . His short-term approach gives Mr. Icahn a strong incentive to strike any deal with Microsoft that enables him to recover his investment and get back his money quickly, even a deal that does not provide full and fair value to you. Is that in the interests of all stockholders? Clearly, it is not.
Mr. Icahn has severely handicapped himself in his ability to negotiate a favorable transaction with Microsoft . Why?

• Mr. Icahn has made it clear that his only objective is to sell part or all of Yahoo! to Microsoft. That fact, combined with his lack of an operating plan going forward, means that he will have no leverage to negotiate a fair deal with Microsoft. He has set himself up for failure.
• Second, Mr. Icahn and his slate lack the working knowledge of Yahoo! and its Internet business needed to do two things that are required to successfully deliver a value-enhancing transaction for Yahoo! stockholders. First, they do not have the detailed knowledge to negotiate a complex restructuring of a large, innovative high technology company in a rapidly changing environment. Second, they do not have the hands-on experience to manage and lead Yahoo! during the approximately one year period estimated to be required to gain regulatory approval for a deal or to manage and lead the remainder of the Company (non-search) after a transaction is completed. Don’t take our word for that. Mr. Icahn will be calling the shots if his slate wins and yet Mr. Icahn himself told the Wall Street Journal last fall: “Technology hasn’t really been one of the things I’ve focused on too much before” and “It’s hard to understand these technology companies.” That’s why you need a knowledgeable, experienced and independent board to represent your interests vis-a-vis Microsoft.

Mr. Icahn can’t make up his mind about what he thinks will work for Yahoo! . He bought his position believing that he could bring Microsoft back to buy all of Yahoo!, at one point suggesting we publicly offer to sell Yahoo! to Microsoft for $34.375. But he didn’t do enough due diligence to determine what your Board already knew: that it was Microsoft’s decision to walk away and that it had rebuffed repeated efforts by your independent directors to get a whole company acquisition back on the table. Recognizing that a sale to Microsoft might not be an option, Mr. Icahn said as an alternative that we should enter into an agreement with Google (which we were already negotiating and subsequently signed), and that we should walk away from Microsoft’s search-only proposal (which we did after careful evaluation of that proposal). Then, in an extraordinary flip flop, Mr. Icahn teamed up with Microsoft and embraced their latest joint search-only proposal — even though it involved significant execution and operational risks and was fraught with flaws that made the “headline value” asserted by Microsoft and Mr. Icahn more illusion than reality.

How can Yahoo! stockholders trust Mr. Icahn to deliver what he claims he can deliver when his actions have been so contradictory —and when all he has delivered so far is a risky proposal of questionable value from his new friends at Microsoft? Yes, the Microsoft/Icahn proposal is somewhat of an improvement over Microsoft’s last search-only proposal, but no one should confuse a modestly improved offer with a good offer. The Icahn/Microsoft proposal was more “smoke and mirrors” than objective reality.
Now let’s turn to the recent marriage of convenience between Microsoft and Mr. Icahn.

This “odd couple” collaboration — between two parties with keenly different agendas — is indeed perplexing. Why does Mr. Icahn believe he can count on Microsoft to complete a transaction? Certainly Microsoft is a well-respected and successful company and we have been clear that we are fully prepared to do a deal with them. But Microsoft’s flip flops and inconsistencies over the past five months are so stupefying that one can only conclude that Microsoft was never fully committed to acquiring Yahoo! either because:

• Microsoft can’t decide what is and isn’t strategically important to its online business;
  or
• Microsoft is more interested in destabilizing a key competitor so that it can either enhance its competitive position or buy our highly valuable search business — and the enormously desirable intellectual property associated with it — at a bargain basement price.

Microsoft desperately needs to improve the performance of its online services business (consisting of its search and display assets) which, cumulatively since 2003, has lost money despite billions of dollars of investment. And yet Mr. Icahn would ignore this track record and its implications for his fellow Yahoo! stockholders, swallowing a deal that leaves Yahoo!’s future dependent, in part, on Microsoft’s ability to monetize search. And, as Mr. Icahn has himself pointed out , it would eliminate any opportunity we may have to sell the entire Company for an attractive premium.

In contrast to the conflicting and confusing statements emanating from the Icahn-Microsoft alliance, your Board and management have been crystal clear about our position.

First, we will sell the entire Company to Microsoft for $33 per share or more if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing . This is the simplest, most straightforward way to maximize value for you.

Second, we remain open to selling only search to Microsoft as long as it provides real value to our stockholders and resolves the substantial execution and operational risks associated with the separation of our search and display businesses .

Third, your Board takes seriously its obligation to examine all value-creating steps it could take and continues to actively examine many of these now, including a potential spin-off of our Asia assets and a return of cash to stockholders . These are steps Yahoo! could take, if we determine they are feasible and in our stockholders’ best interests, without any “help” from Microsoft or Mr. Icahn. But they are complex steps that require care and prudence. These should not be adopted simply because Mr. Icahn and Microsoft are trying to dress up Microsoft’s inadequate search-only proposal.

While your Board continues to evaluate the foregoing avenues, your current Board and management continue to execute on our strategy to grow the value of our unique collection of assets . That strategy is working and we believe it can result in substantial double digit growth in operating cash flow as we move forward. Our recently executed search advertising agreement with Google reflects our commitment to achieving our strategic goals, while preserving flexibility to pursue a sale of the Company or even, on the right terms, a sale of our search business.

Please compare and contrast the straightforward, responsible actions and positions of your Board of Directors with the behavior of Mr. Icahn and Microsoft.
There you have the situation, as we see it, put as simply and clearly as we can. We believe the Icahn slate and agenda present significant risk to your investment in Yahoo!. We believe you

cannot count on Microsoft to bail out Mr. Icahn’s misguided agenda, at least not on terms that are in the best interests of Yahoo! stockholders.

In contrast, your Board remains fully prepared to represent your interests aggressively and conscientiously in the effort to maximize value — whether that takes the form of negotiating a transaction that provides full and fair value, with certainty; finding other ways to unlock and return value to you; or moving forward with our accelerated strategies to lead in online advertising.

Your Board of Directors remains committed to maximizing stockholder value. It is — and will remain — our number one priority. Do not be fooled into thinking otherwise by Carl Icahn.

We strongly urge you to vote your WHITE Proxy Card today for your current Board of Directors.
Thank you for your support.

Roy Bostock
Jerry Yang

They clearly had a commitment to get the deal done. That commitment was not there on the part of Microsoft. I made it clear to board and management, and Jerry made it clear to troops that it was a very high probability this deal was going to get done because they have all the money in the world and can make it happen. Had Microsoft managed it differently, the outcome would have been the InBev and Anheuser-Busch outcome, without question.

Yang simply does not want to sell of his search business wholesale and wants a second chance to try to revive Yahoo, with him or people picked by him and the board, despite his inability to do so thus far. He would sell Yahoo whole if that’s the only choice.

But while Yang "simply does not want to sell of his search business" Microsoft said yesterday that

Mr. Bostock called Steve Ballmer’s office to arrange a call. On that subsequent call, Mr. Bostock told Mr. Ballmer that “with substantial guarantees on the table and an increase in the TAC (traffic acquisition cost) rate, there are the pillars of a search only deal to be done.”

After hardly participating in negotiations with Microsoft at all during the first few months of this ordeal — and subsequently watching Yang blow the negotiations — Bostock now seems to be the only guy at Yahoo talking to Microsoft. Problem is, he can't convince the co-founder and CEO Yang to go along with any of his ideas. What with corporate raider Carl Icahn trying to have his way too, no wonder Microsoft wants a new Yahoo board and new Yahoo management. Microsoft CEO Steve Ballmer can be a little tyrannical, but he's no Kim Jong-il in need of six-party talks. (We would love to see him wearing the shades.)

Microsoft Sets the Record Straight

REDMOND, Wash. – July 14, 2008 - On the evening of July 12, Yahoo! Inc. released a statement relating to recent discussions involving Yahoo!, Microsoft Corporation, and Carl Icahn. Microsoft believes the statement contains inaccuracies that need to be corrected. Among other things, the enhanced proposal for an alternate search transaction that we submitted late Friday was submitted at the request of Yahoo! Chairman Roy Bostock as a result of apparent attempts by Mr. Icahn to have Microsoft and Yahoo! engage on a search transaction on terms Mr. Icahn believed Microsoft would be willing to accept and which Microsoft understands Mr. Icahn had discussed with Yahoo!.

Specifically, on Thursday afternoon, July 10, Mr. Bostock called Steve Ballmer’s office to arrange a call. On that subsequent call, Mr. Bostock told Mr. Ballmer that “with substantial guarantees on the table and an increase in the TAC (traffic acquisition cost) rate, there are the pillars of a search only deal to be done.” Mr. Bostock encouraged Mr. Ballmer to submit a new proposal to Yahoo! for a search only deal reflecting these terms.

After considering Yahoo’s request and taking into account Yahoo’s previous feedback about our prior search proposal, Microsoft determined late Friday to propose an enhanced search transaction. This proposal included significant revenue guarantees, higher TAC rates, an equity investment and an option for Yahoo! to extend the agreement over a 10 year period.
Microsoft’s proposal did not include changes to Yahoo’s governance.

At the time Microsoft submitted its enhanced proposal, Microsoft asked that Yahoo! confirm whether it would agree that the enhancements were sufficient to form the basis for the parties to engage in negotiations over the weekend on a letter of intent and more detailed term sheets. This discussion has been mischaracterized as a take it or leave it ultimatum, rather than a timetable in order to move forward to intensive negotiations. Yahoo! informed Microsoft on Saturday that it had rejected the proposal.

• Lucian A. Bebchuk, professor, Harvard Law School
• Frank J. Biondi, Jr., former president and CEO of Viacom
• John H. Chapple, president of a privately-owned equity firm
• Mark Cuban, owner of the Dallas Mavericks, cofounded HDNet and Broadcast.com, legendarily screwed over Yahoo in its purchase of Broadcast.com
• Adam Dell, managing general partner, Impact Venture Partners; brother, Michael
• Carl C. Icahn
• Keith A. Meister, Icahn crony
• Edward H. Meyer, chairman and CEO of an investment management company
• Brian S. Posner, private investor

(Photoillustration by Jackson West; photo of Icahn by AP/Mark Lennihan)

• Roy Bostock: This guy is chairman of the Partnership for a Drug-Free America. Can you imagine anyone more out of touch with Yahoo's workforce?
• Art Kern: On the board since January 1996. Used to own some radio stations. Gives a lot of money to good causes. Great — how about you do that full-time, Art?
• Ron Burkle: Politically connected former grocery-store owner.
• Gary Wilson: Used to run Northwest Airlines. Shouldn't that be a disqualifier to do anything?

Memo to the rest of Yahoo's board: Hey, you're okay in our book! Let's do lunch!

The events of recent weeks underscore the fact that your board of directors is far better qualified to represent your interests in the effort to maximize stockholder value than the slate put forward by Carl Icahn.

Bostock and Yang just want you to express your mutual affection by replying with your white card in the proxy vote dating game. The profession of sweet love in full after the jump.

Dear Fellow Stockholders:

We are writing to update you on the latest developments here at Yahoo!, including our recently announced commercial agreement with Google and the outcome of our discussions with Microsoft regarding a potential transaction.

On June 12, we announced a non-exclusive agreement with Google that we expect will generate approximately $250 to $450 million in incremental operating cash flow for Yahoo! in the first twelve months following implementation. This cash flow will enhance our profitability as well as help support achievement of our key strategic objectives. Combined with continuing advances in our own search capability, the agreement is an important step in our efforts to capitalize on the high-growth online advertising opportunities where we are best positioned to compete successfully and create more value.

Let us explain why we find this new agreement so exciting.

The Yahoo!-Google Agreement is Financially Attractive and Strikes the Right Strategic Balance.

Under the agreement with Google, Yahoo! will continue to provide algorithmic and sponsored search results, but now will also have the ability to run sponsored search ads supplied by Google alongside Yahoo!’s search results. Advertisers will pay Google directly for each click on Google paid search results appearing on Yahoo!. Google will then pay us a fee (in industry jargon, traffic acquisition cost) based on revenue realized from click-throughs on ads supplied to Yahoo! by Google.

This carefully structured agreement strikes the right strategic balance, enhancing our financial results while advancing our strategic objectives of being the “starting point” for the most users on the Internet and offering such compelling value that advertisers will see us as the “must buy” in online advertising.

One of our key strategies for achieving these objectives is to capitalize on the increasing convergence of search and display advertising, where we are especially well positioned to compete and succeed. We have already accelerated our efforts to strengthen our presence in display through a variety of initiatives and acquisitions in recent months. Our new commercial agreement with Google enhances our ability to pursue this strategy.

Another key strategy is to open our platform to other developers to optimize monetization for our advertisers and publishers and provide the best experience for our users. We see this agreement as a natural extension of the efforts we have already made toward an open marketplace.

The Google agreement is non-exclusive and provides strategic and operational flexibility for Yahoo!. It allows Yahoo! to use Google’s services in those areas where Google monetizes our inventory more effectively but also permits us to continue to use our own search technology in areas where we believe we are most competitive. The net result is that the agreement helps us accelerate one of our strategic aims–closing the monetization gap. At the same time, it allows Yahoo! to continue to compete aggressively in search and display advertising.

Importantly, the agreement does not prevent Yahoo! from pursuing other alternatives that could increase stockholder value. Because the agreement can be terminated by either party upon a change in control, it would not preclude a transaction with Microsoft or any other potential acquiror in the future.

The Yahoo!-Google Agreement Does More for Stockholder Value than Microsoft’s Search-Only Hybrid Proposal.

We also want to update you on the conclusion to our discussions with Microsoft regarding a potential transaction. As we explained in our last letter, our board and management held numerous meetings and conversations with Microsoft about its proposal to acquire Yahoo!, both before and after Microsoft withdrew that proposal on May 3. On June 8, our Chairman, Roy Bostock, other independent board members, and members of Yahoo!’s management team again met in person with Microsoft representatives. At that meeting, Microsoft stated unequivocally that it has no interest in acquiring all of Yahoo!, even at the price range Microsoft had previously suggested.

Microsoft did propose an alternative transaction. Rather than acquire our whole company as it had been proposing for months, Microsoft now proposed to acquire only our search business for $1 billion and a share of future search advertising revenue. This proposal also included an $8 billion investment in Yahoo! but required Yahoo! to commit to a 10-year exclusive arrangement that would have made us dependent on Microsoft for all of our search business. It would also have given Microsoft veto rights on certain future Yahoo! actions, including a sale of Yahoo!. Our board of directors and management made a great effort–and conducted in depth negotiations–to elicit a feasible proposal from Microsoft that made strategic and financial sense for Yahoo!, but without success.

While Microsoft’s search-only hybrid proposal may have been helpful to Microsoft, our board and management concluded it would have had a significant adverse impact on Yahoo! strategically, leaving the Company without the operational control of search assets and technology we view as critical to our objective of becoming a leader in the converging search and display advertising business. The board and its advisers also carefully studied the financial impact of Microsoft’s proposal and concluded that it would have provided no meaningful improvement to our operating cash flow. In short, this proposal would have generated substantially less value for Yahoo! stockholders than Microsoft has suggested.

Based on all the key factors–strengthening our competitiveness, protecting our strategic position, generating attractive financial returns–the Google agreement is far better than Microsoft’s search-only hybrid proposal. That’s why we moved forward with it.

Your Current Board of Directors Has the Knowledge, Experience and Commitment to Best Represent Your Interests and Maximize Stockholder Value.

The events of recent weeks underscore the fact that your board of directors is far better qualified to represent your interests in the effort to maximize stockholder value than the slate put forward by Carl Icahn.

Based on Mr. Icahn’s narrow agenda, it seems highly unlikely that either he or his slate would bring added value to Yahoo!. Consider the following:

– Mr. Icahn put forward his slate so as to sell Yahoo! to Microsoft, even though he had no knowledge of the sustained efforts made by your current board and management to determine whether Microsoft was willing to engage in a transaction that would provide appropriate value and certainty of achieving that value. On June 8, Microsoft once again made it perfectly clear that it is not currently interested in acquiring Yahoo!.
— Mr. Icahn publicly opposed any alternative form of transaction with Microsoft. Your board and management, after thorough and deliberate negotiations and evaluation, separately concluded on its own that the alternative hybrid deal proposed by Microsoft was, indeed, not in the best interests of the Company or its stockholders.
— Mr. Icahn urged, as an alternative to a Microsoft transaction, that Yahoo! find a way to partner with Google that would not preclude a transaction with Microsoft in the future. We have done exactly that through the commercial agreement with Google we announced on June 12.

Simply put, you can choose to vote for a slate of nominees with no articulated plan for the future of Yahoo!–and who now have essentially no alternative agenda to offer you–or you can choose to vote for your existing board of directors which has the independence, experience, knowledge and commitment to navigate the Company through the rapidly-changing Internet environment, execute on our strategic objectives and deliver value for Yahoo! and its stockholders.

It is time for Yahoo! to turn its undivided attention to implementing its key strategies, and we therefore urge you to reject Mr. Icahn’s slate and his ill-defined agenda.

We strongly urge you to vote your WHITE Proxy Card today for your current board of directors.

We look forward to sharing our progress with you as we move forward and we thank you for your support.

Sincerely,

Roy Bostock Jerry Yang
Chairman of the Board Chief Executive Officer

Since choosing Google, Yahoo's experienced only more internal turmoil. The kind that hardly makes the company or any part of it more appealing for acquisition. Yahoo's angstiest shareholder Carl Icahn is said to favor outsourcing Yahoo's search to Google, rather then selling part of the company to Microsoft. And finally, Yahoo CEO Jerry Yang already spent a week in Washington trying to convince lawmakers that a Google deal won't destroy the search market. The most likely explanation for News.com's story? A desperate Yahoo shareholder, anonymously leaking contrived news in order to jumpstart the negotiations or at least boost Yahoo's dismal stock price.

You [Roy Bostock] asked, 'what exactly would happen to our Company if you and your nominees were to take control of Yahoo!' I will give you my perspective on that.

• First, I would work to have the board replace your "poison pill" severance plan with an acceptable alternative.
• Second, I intend to ask our new board to hire a talented and experienced CEO (attempting to replicate Google's success with Eric Schmidt) to replace Jerry Yang and return Jerry to his role as "Chief Yahoo". Indeed, it was much speculated that Jerry would serve in the CEO role temporarily until a permanent CEO was hired after the board asked Terry Semel to resign.
• Third, I intend to ask our new board to inform Microsoft that unless any alternative transaction can insure a $33 or higher stock price (of which I am skeptical) all talks of alternative transactions are over.
• Fourth, I will ask our new board to offer publicly to sell Yahoo! To Microsoft in a friendly and cooperative transaction.
• Fifth, to the extent Microsoft does not want to make a proposal, I will ask our new board do a deal on search with Google, but only if it contains termination provisions that would in no way impede a subsequent acquisition by Microsoft.

Yang's negotiation gaffe so enraged shareholders that Yahoo chairman Roy Bostock has had to promise them that the Yahoo CEO now has Bostock or other board members in attendance at all ongoing negotiations with Microsoft. "They are telling us it is 'adult supervision,'" one investor told BoomTown, "and that Jerry has more of a realistic attitude now too that some kind of transaction has to happen and Yahoo has few options." Says another: "Jerry is beloved at the company and he knows now that that's at risk if let's this spin out of control any more, so I think he's wised up to the situation." (Photo by Yodel Anecdotal)

But the letter is a stiffly worded blowoff, with a non-sequitur ending, "We look forward to a productive dialogue." Dialogue about what, precisely? All the ways Yahoo's board is right, and Icahn is wrong? Bostock may well have a point there, but this is no way to handle a combative professional tormentor of companies. Icahn is a vain old fool who requires substanceless coddling, not factual arguments.

Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal. A fair-minded review of the factual record leads to one conclusion: that Yahoo!'s ten-member board, comprised of nine independent directors along with Yahoo! CEO Jerry Yang, remains the best and most qualified group to maximize value for all Yahoo! stockholders.

Dear Mr. Icahn:

We are in receipt of your letter with regard to your intention to seek control of Yahoo!'s board of directors.

Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal. A fair-minded review of the factual record leads to one conclusion: that Yahoo!'s ten-member board, comprised of nine independent directors along with Yahoo! CEO Jerry Yang, remains the best and most qualified group to maximize value for all Yahoo! stockholders.

Conversely, we do not believe it is in the best interests of Yahoo! stockholders to allow you and your hand-picked nominees to take control of Yahoo! for the express purpose of trying to force a sale of Yahoo! to a formerly interested buyer who has publicly stated that they have moved on. Please may I remind you that there is currently no acquisition offer on the table from that company or any other party. That said, we have been crystal clear in our stance that we have been and remain willing to consider any proposal from any party including Microsoft if it offers our stockholders full and certain value.

From the beginning of the process with Microsoft, Yahoo!'s independent directors focused on one central goal: how best to maximize stockholder value. At all times directing this process, Yahoo!'s independent directors carefully considered Microsoft's initial unsolicited proposal, which was at the time valued at $31 per share. After considering input from its financial advisers the board unanimously concluded that Microsoft's proposal significantly undervalued Yahoo! and was, therefore, not in the best interests of the company or our stockholders. While we rejected this offer publicly on February 11, 2008, we could not have been more clear in that communication and in every subsequent communication, both public and private, that we were and are willing to enter into any transaction that would maximize value for stockholders and provide them certainty of value.

The record of our efforts to engage Microsoft in meaningful discussions is unequivocal. Following receipt of Microsoft's proposal on January 31, our board of directors has met over twenty times to review Microsoft's proposal and Yahoo!'s other strategic alternatives. Throughout this process our board kept an open mind and an open ear. Our independent directors met with several of our largest stockholders to solicit their views and to make it clear that Yahoo!'s independent board is fully committed to maximizing stockholder value. In addition, at the direction of our board, our management team met with many of our investors to provide insight into Yahoo!'s strategy and views on value.

Our board's openness also extended to Microsoft. Without reciting all of the contacts between us and between our advisers, the senior-most management of Yahoo! and Microsoft and the companies' respective financial advisers spoke on numerous occasions and met in person seven times. During those meetings, Yahoo! discussed its strategic objectives in search and display advertising monetization, its perspectives on operating strategy and integration in a transaction with Microsoft, its perspectives on transaction synergies, and other non-price deal terms. Because certainty of closing is a critical issue, we sought to understand Microsoft's thinking with regard to the regulatory issues associated with a potential transaction. In fact, at the board's direction, our lawyers on March 28 asked for additional information in this regard, information which was never forthcoming.

On April 15th, a meeting was held at Yahoo!'s request. At that meeting, which included our respective financial advisors, we made clear, once again, that we were open to a transaction with Microsoft. During those discussions, Yahoo! made a detailed presentation of its strategic and financial plan, its thoughts on integration and its view with respect to the potential synergies that could be achieved in a transaction, essentially laying the foundation for Microsoft to understand—and respond to—our board's conclusion that Microsoft's offer substantially undervalued the company. Following that meeting we also provided to Microsoft a list of key non-price deal terms that our board believed were critical items to be addressed in a deal to provide reasonable protections for our stockholders.

Throughout this period, Microsoft continued to state that it would not raise its offer, and even suggested that it could lower it.

Despite this failure by Microsoft to respond in any substantive way to any of Yahoo!'s requests, on May 2nd, the same day we first learned of Microsoft's apparent willingness to increase its proposal to $33 (although this oral "offer" was never delivered in writing and did not include details of a cash/stock mix), our board determined to continue discussions, instructing Jerry Yang to indicate to Microsoft that we would be prepared to enter into a transaction that valued Yahoo! at $37 per share and that provided reasonable certainty of value and certainty of closing. This was communicated to Microsoft in-person at a meeting in Seattle on May 3rd. With Microsoft's offer at $33 and Yahoo!'s counter-proposal at $37, Microsoft elected, within hours, to walk away from the negotiating table and informed us that they were "moving on," having never engaged further on price or any of the key non-price deal terms.

In short, Yahoo!'s board was at every point in this process prepared to enter into a transaction with Microsoft that would maximize stockholder value—and included certainty of value and closing. What Yahoo!'s independent board refused to do was to allow control of this company to be acquired for less than its full value.

That brings us to today. Our business is performing well as evidenced by our first quarter results. As we have publicly stated, our board continues to actively and expeditiously explore strategic alternatives to maximize stockholder value. None of the alternatives we are considering would preclude us from entering into a transaction with Microsoft or any other party.

We continue to believe that Yahoo!'s current board has the independence, the knowledge, and the commitment to navigate the Company through the rapidly changing Internet environment and to deliver value for Yahoo! and its stockholders.

We look forward to a productive dialogue.

Very truly yours,

Roy Bostock

The board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. Microsoft's bid of $33 per share is a superior to Yahoo's prospects. It is irresponsible to hide behind management's overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72 percent premium. Yahoo and Microsoft would compete with Google. Shareholders asked me to remove the current board and negotiate a merger with Microsoft. I therefore purchased approximately 59 million shares, formed a 10-person slate, sought antitrust clearance to acquire $2.5 billion worth of Yahoo. Heed your shareholders and negotiate a merger with Microsoft.

• Lucian A. Bebchuk is Professor at Harvard Law School.
• Frank J. Biondi, Jr served as President and Chief Executive Officer of Viacom, Inc.
• John H. Chapple [is] President of a privately-owned equity firm.
• Mark Cuban, owner of the [Dallas Mavericks] National Basketball Association franchise, cofounded HDNet and Broadcast.com.
• Adam Dell is the Managing General Partner of Impact Venture Partners.
• Carl C. Icahn.
• Keith A. Meister, of Icahn Enterprises G.P. Inc. and Icahn Capital LP.
• Edward H. Meyer serves as Chairman, CEO of an investment management company.
• Brian S. Posner is a private investor.
• Robert Shaye is Co-Chairman and Co-CEO of New Line Cinema.

One source told the paper, "The emotional part of Yang would rather do anything but sell to Microsoft, but he doesn't have the cards to come up with a value-creating, competitive alternative for shareholders." Reports yesterday indicated Yang's last hope remains with Rupert Murdoch and News Corp..

Subject: more on today's news...

-CONFIDENTIAL-

fellow yahoos:

since we talked to you this morning, there's been a lot of media coverage and industry chatter about microsoft's unsolicited proposal to acquire yahoo!. we know you've been hearing and reading a lot about this. that's why we wanted to reach out to all of you at the end of the day to emphasize a few things that we hope will give you some more context about this proposal, the process that our board is taking, and what you can expect in the days ahead.

first, we want to emphasize that absolutely no decisions have been made — and, despite what some people have tried to suggest, there's certainly no integration process underway. this proposal is just that — a proposal. and it was only made in the last 24 hours. you can be sure the board is going to review it thoughtfully and carefully, and do what's right for our great company. microsoft's proposal is one of many options that we're evaluating in order to maximize value for our shareholders and employees over the long-term. that's why we will respond to microsoft after our board has completed a careful review of all of our strategic alternatives.

second, we can't let any of the noise we're hearing around this situation distract us from our core mission. it's critical that we continue to focus on running our business, executing our strategy and delivering value to all of our users, advertisers and publishers.

finally, we realize that this may have been a tough day for many of you, especially those on the front lines of our business. we know you have many questions, and we're committed to making sure you're as informed as possible as this process moves forward. in the interim, we both want to thank you for your continued energy, focus and determination. we'll continue to share information with you as we have it and can do so.

jerry and roy bostock (our new non-executive chairman)

A tipster sent us the oddly e.e. cummings-esque internal email from Yahoo cofounder Jerry Yang announcing the departure:

several months ago, terry initiated discussions with the board of directors about stepping down from the chairman role once the board was able to identify a successor. since then, i have worked closely with terry and the board to ensure an orderly transition. today, we announced that terry will leave the board and roy bostock, who has been a member of the board since '03, will assume terry's role as non-executive chairman.

i want to thank terry for his years of service and contributions to yahoo!. he's been a great partner and a true friend. out of appreciation for everything he's done for us, we're naming the entrance to our sunnyvale headquarters "semel drive." stay tuned for more info.