Dear Carl:


We are in receipt of your letter of June 4th and take issue with its content. Your letter seriously misrepresents and manipulates the facts regarding the recent events pertaining to Microsoft and Yahoo!. You rely on, as “facts,” a series of unsubstantiated allegations from a complaint filed in a Delaware court which grossly misstate the very clear record and position established by the Yahoo! Board. Let me elaborate:



You make reference to our employee retention plan but you significantly mischaracterize its purpose and its effect. In fact, you refer to it as a “Poison Pill” which could not be further from the truth. To set the record straight, the employee retention program is designed to protect the Company’s assets and value during a time of uncertainty. The claim that the plan gives each of Yahoo!’s employees “the right to quit his or her job and pocket generous termination benefits at any time during the two years following a takeover...” is just plain wrong. In fact, our plan has a “double trigger” which means that in order for an employee to be eligible for benefits under our plan, there would need to be a change of control AND the employee would need to be terminated “Without Cause” or resign for “Good Reason.” That means that in contrast to your assertions, an employee who simply quits his or her job would receive nothing under our plan.



The retention plan is intended to help us preserve and enhance shareholder value by allowing Yahoo! to continue to attract and retain the industry’s best talent, and to allow employees to stay focused on implementing Yahoo!’s business strategy. In fact, the plan was adopted in order to protect the value of Yahoo! in anticipation of a possible acquisition by Microsoft which would have resulted in a lengthy regulatory review and a significant period of uncertainty for our employees. In adopting this plan, we believe Yahoo! did the right thing for its employees and its shareholders alike.



This plan was fully disclosed at the time of its adoption and should be no surprise to anyone at this point. It was disseminated to employees, publicly filed and extensively covered by the media. Significantly, as you note, Microsoft had indicated that it was prepared to spend $1.5 billion on retention incentives indicating that they too recognized that the retention of Yahoo! employees would have been critical if there had been an acquisition.



Finally, you significantly misrepresent the events of the recent past. Notably, you accuse us of turning down a $40 per share offer and “sabotaging” a $33 per share offer. Again, this is patently untrue. Yahoo!’s Board of Directors has at all times been focused on maximizing shareholder value. As has been well documented, Yahoo! has engaged in thorough discussions with Microsoft over a series of months culminating in Microsoft’s decision to walk away from a potential acquisition of Yahoo!. Throughout this process, which has included an exploration of multiple strategic alternatives with multiple parties, the Board has repeatedly stated that it is open to any transaction, including a sale to Microsoft, as long as it is in the best interests of shareholders.



You seem to be under the impression that somehow Microsoft will come back to the negotiating table for a full acquisition of Yahoo!. This is puzzling as I know you are aware that we have reached out to Microsoft proactively and met with them many times in the last several weeks. During this period, their message to us and to the markets has been and remains that they are not interested in pursuing a full acquisition of Yahoo!.
Conspicuously absent from your letter is any credible plan for Yahoo! other than a repetition of your insistence that the Company should sell itself to Microsoft. Indeed, your stated view that “the only way to salvage Yahoo! in the long if not short run is to merge with Microsoft” demonstrates that you have no other plan and causes one to wonder what exactly would happen to our Company if you and your nominees were to take control of Yahoo!.



Sincerely,
Roy Bostock



Chairman of the Board

Yahoo's "poison pill" severance package has corporate raider Carl Icahn twisted in knots. In his latest letter to Yahoo's board, he writes:

Details of Yahoo's poison-pill employee severance package, designed to deter a Microsoft aquisition, were revealed with the release of documents from the shareholder lawsuit pending in Delaware courts. Yahoo estimated the cost of post-acquisition layoffs as up to $2.1 billion; raider Carl Icahn, who's trying to force a sale to Microsoft, put the figure at $2.5 billion under the plan, according to the Wall Street Journal. Remarked Icahn, who thinks the details revealed will help him in his question to unseat Yahoo CEO Jerry Yang:

The complaint in a shareholder lawsuit against Yahoo unsealed yesterday reads like a whodunit. But my favorite part of the mystery are notes from the call Microsoft CEO Steve Ballmer made to Yahoo CEO Jerry Yang on January 31, the night before Ballmer took Microsoft's merger bid public. At one point, Yang pleads: "You don't lose anything by waiting a week." Ballmer saw right through Yang's delay tactics, saying there was no point in waiting if Yang didn't want to sell the company. See the exchange and the rest of the suit filing embedded below.

A judge has unsealed documents in a shareholder lawsuit against Yahoo, the Wall Street Journal reports, and the allegations, now posted online, are explosive. Chiefly, that Microsoft offered to buy Yahoo at $40 a share in January 2007. Then-CEO Terry Semel turned Microsoft down, seeking to strike a commercial partnership instead. Slow progress in negotiating that deal made Microsoft executives impatient, leading to its unsolicited bid at $31 a share. While the plaintiffs, two Michigan pension funds, are presenting that history, it actually explains much about Yahoo's resistance to Microsoft's recent advances.

With money from Warner Bros., private equity firms, and the United Arab Emirates, former Yahoo CEO Terry Semel wants to buy talent and marketing agency IMG. Semel's plan: Turn the agency, currently owned by buyout guy Ted Forstmann, into a media and content company with a focus on digital distribution — more or less the same thing Semel wanted to do with Yahoo. The difference this time? No one on Wall Street will ask why Semel and IMG aren't throwing money at catching up with those pipsqueaks Larry and Sergey in search.

Joining with private equity firms Blackstone and Bain Capital, NBC Universal bid $3.5 billion to acquire the Weather Channel and Weather.com. The cable channel is available in 97 percent of all cable TV home and has 96 million U.S. subscribers. With its local coverage and the always popular schadenfreude-laced disaster porn excerpted in the video above, Weather.com can claim a "people count" of 19 million in the U.S., according to Compete.

A source close to Glam Media — the ad network that rounds up websites for women and then resells their ad inventory at higher prices to advertisers targeting the demographic — told VentureBeat the company has turned down a $1.3 billion acquisition offer. Glam turned down the offer because it expects a "bigger opportunity" down the road — perhaps an IPO. One of Glam's own partners tells us it'd be "crazy of them if they did." And likewise, we've never taken much stock in Glam's business model. (Disclosure: Our parent company, Gawker Media, owns Jezebel, which competes with some sites in Glam's network.)

Having walked away from Yahoo, Microsoft is supposedly eager to buy a passel of online-advertising startups. Los Angeles-based Spot Runner is a natural target; it uses Microsoft technologies, has hired Microsoft executives, and was founded by Nick Grouf, who sold a startup to Microsoft a decade ago. Spot Runner's business, creating and placing ads on hard-to-buy, hard-to-sell cable-TV spots, is an area where Google is not at all entrenched. But we now hear a rumor that Microsoft's board has nixed a $550 million deal for Microsoft to buy Spot Runner. Spot Runner just raised $51 million in venture capital, which makes the price tag seem plausible, if hard for Microsoft to swallow. Why the deal fell apart at such a late stage, and in such an embarrassing way — it's rare for boards to oppose management on deals of this size — are unknown. Heard anything more? Spot us a tip.

Slide founder Max Levchin believes Web 2.0 is about to bust. Funding will evaporate and revenues won't materialize; companies will fold and employees will lose their jobs. The lucky few that can will sellout to larger companies. All of which means "this is the perfect time to start a company," Levchin told the Financial Times. Why does Levchin believe this? You know, other than the fact that he's a well-documented masochist who works 15 to 18 hour days and, despite a fear of the water, forced himself through a triathlon?

Why didn't Microsoft CEO Steve Ballmer follow through on his threat to take his $33 per share offer for Yahoo to its shareholders? Because Microsoft chairman Bill Gates tapped the brakes, reports Kara Swisher. "Numerous sources" say Gates didn't want a Yahoo merger as a way to solve Microsoft's online problems, but figured as CEO of the company, Ballmer should have free rein.

Yahoo pushed its annual shareholder meeting back from July 3 to "around the end of July." Since originally scheduling the meeting, shortly after Microsoft CEO Steve Ballmer walked away from merger negotiations, corporate raiders Carl Icahn and a merry band of followers have taken control over 30 percent or more of the company and put forward a new slate of directors for Yahoo's board in hopes of pushing the merger through.

When Microsoft CEO Steve Ballmer met with Yahoo cofounders CEO Jerry Yang and David Filo on May 3, Yang and Filo refused to come down from their $37 per share price, according to Kara Swisher's new account of the meeting. Yang left thinking everything went well, and that he and ballmer were just starting to dicker over price — which would explain why he and Filo reportedly exchanged high-fives afterwards. The next day, Ballmer told the world Microsoft was withdrawing its offer.

Time Warner Cable will pay shareholders a $10.9 billion dividend as part of its spinoff from Time Warner, which will get $9.25 billion as its portion. With that cash in the bank, will Time Warner-Yahoo negotiations heat up? Last we heard, Yahoo CEO Jerry Yang and Time Warner CEO Jeff Bewkes were negotiating a deal that would merge AOL and Yahoo and give Time Warner 20 percent control over the new company. According to Bewkes, the new cash could result in "disciplined acquisitions." Bewkes also acknowledged that AOL-Yahoo "discussions are going on." But here's the thing: as much as Yahoo CEO Jerry Yang might prefer merging with AOL rather than selling out as a whole or in splinters to Microsoft, it's not really up to him anymore, is it?

San Francisco-based blog network Sugar Publishing has bought StarBrand Media, a company that works with television producers to highlight and sell clothing and furnishings that appear in popular shows such as Gossip Girl, making every moment in every show an opportunity to place a product. One network it doesn't work with yet is NBC, which just happens to have invested in Sugar Publishing.

The fact that they're at the table — regardless of what they were telling themselves got them to the table — it's much more likely that they say "enough with the four foot high stack of paper outlining the details of the deal. Just merge."

In an address to employees after a tour of the CNET building in SoMa, CBS chairman Leslie Moonves proclaimed, "CNET is CBS Interactive's worldwide headquarters." It might have been meant to stoke employees on the deal. But it could just as well remind workers who just went through a round of layoffs that they now face redundancy with CBS's own online publishing teams.

Having reached 13 million girls with the chance to design glittery jpegs for each other, social site Girlsense has a new parent: InterActiveCorp. IAC already has teen virtual world Zwinky and its 6 million users, part of their aim to take on a "broader teen mindshare." Girlsense brings a different slice of the demo — the girls who go for Glam Ads and butterflies, and maybe a few of their doting rainbow-loving boys-who-are-friends, too.

Joining John Paulson in support of corporate raider Carl Icahn's plot to force a Microsoft-Yahoo merger, Texas oilman and longtime Icahn ally T. Boone Pickens purchased 10 million shares of Yahoo. Pickens told CNBC he plans to support Icahn in a proxy fight. By our count, PIckens's addition puts 30 percent of Yahoo shares in control of those favoring a merger with Microsoft — a merger that Microsoft, having been rebuffed the last time, has yet to propose.

A Facebook sale to Microsoft is practically taken for granted by whipped-up bloggers, wishful thinkers, and tech pundits. By everyone, in short, except for those who would actually decide such matters. Kara Swisher says a sale is unlikely. My sources are more definite: Microsoft has asked if Facebook would sell, and gotten an unequivocal "no." Founder Mark Zuckerberg controls three out of five potential Facebook board seats, and he doesn't want to sell.