Yahoo's big summer letdown
What was supposed to be the season's biggest corporate showdown is now shaping up as a giant snooze-fest.
SAN FRANCISCO (Fortune) -- With a cast of defiant board members, angry shareholders and a billionaire investor ready to make trouble, Yahoo's annual shareholder meeting Friday was once the hottest ticket in Silicon Valley.
Well, not anymore.
Anticipation of a headline-grabbing showdown fizzled last week after Yahoo announced it had cut a deal with activist investor Carl Icahn, who threatened to overthrow Yahoo's board over its refusal to sell the company to Microsoft (MSFT, Fortune 500). In exchange for three seats on Yahoo's expanded 11-member board of directors, Icahn promised to end his proxy fight and support the Yahoo incumbents.
"It will not do shareholders or Yahoo any good to have the annual meeting turn into a media event for no purpose." wrote Icahn in a blog post Thursday.
Analysts now expect the meeting to be sleepy. "This thing has gone from being an extremely important event to almost no event," says Sandeep Aggarwal, an Internet analyst with Collins Stewart.
Still, investors are eager for Icahn's next move. Some wonder if Icahn will press Yahoo to spin off its Asian assets, sell its search business to Microsoft or oust cofounder and CEO Jerry Yang.
The corporate raider has most recently pushed for management change at Blockbuster (BBI, Fortune 500) and Motorola (MOT, Fortune 500) after securing board seats at those companies. Last year, Blockbuster CEO John Antioco agreed to step down after Icahn initiated a campaign to cut his salary. After Icahn won two seats on Motorola's board in April, he persuaded the company to dump its cell phone division and was instrumental in pushing out former CEO Ed Zander.
Icahn isn't talking about his plans, but he took pains in his blog post to emphasize that he won't be marginalized on the board.
"An important part of my compromise with Yahoo is that the board in the settlement agreement has agreed that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made," he wrote. "Additionally, if any committee is formed to negotiate a meaningful transaction, Carl Icahn will be a member of that committee."
"A few days ago, I met with both Jerry Yang and Roy Bostock and I believe both gentlemen genuinely wish that we will be able to work together to enhance value," Icahn added.
For now, the most exciting news expected from Yahoo's meeting at the Fairmont Hotel in San Jose, Calif., will be the re-election of Yahoo's eight existing directors, including chairman Roy Bostock, supermarket magnate Ron Burkle and former Microsoft executive Mary Agnes Wilderotter. Icahn will also be named a board member. The two wildcards - which could include ex-AOL chief executive Jonathan Miller or an Icahn nominee from his proxy slate - will not be announced at the shareholder meeting. Under the agreement struck between Icahn and Yahoo, the board has until Aug. 18 to name the additional members.
Icahn's no-show could anger some shareholders. Before Icahn and Yahoo called a truce, the activist went on a very public tirade against Yahoo's board for not sufficiently protecting its investors during negotiations with Microsoft over the software giant's buyout offer.
Some shareholders say it'd be only fair for investors to expect the newest Yahoo board member to make good on his rhetoric. "I think he should be there," says Eric Jackson, a dissident investor from Florida who will attend the meeting.
Don't expect major shareholders to show up at the meeting either. Institutional holders vote on thousands of proxies each year and rarely attend annual meetings, especially when a board is uncontested. Proxy experts say that most of the drama between institutional investors and a board happens behind closed doors prior to a board election.
In the past several months, some of Yahoo's management team and board members have met with top investors, including Legg Mason's Bill Miller and Capital Research investor Gordon Crawford, both of whom have publicly criticized Yahoo for the way it handled negotiations with Microsoft.
The Yahoo meeting may lack heavy hitters, but rank-and-file shareholders could provide some drama. The company will have a short Q&A session, where some impassioned retail shareholders are expected to cause a stir. "The board has come under heavy criticism for the way it handled the Microsoft deal," says Paul Schulman, an executive managing director for the Altman Group, a proxy advisory firm. "It could be a fairly rancorous meeting."
Shareholders say they still want answers on how the board will move the needle on Yahoo's share price. "Okay, so everyone knows there's going to be a new board," says Chris Boova, an investment officer at J. & W. Seligman, which has a minor stake in Yahoo. "The question is, what is your plan?"