Yahoo settles with Icahn to avert August showdown

Yahoo shares fell 78 cents Monday to finish at $21.67--well below the $33 a share that Microsoft CEO Steve Ballmer dangled in early May before withdrawing the bid after Yang sought $37 per share.

Icahn's involvement on corporate boards hasn't always paid off. For instance, he won three board seats at Blockbuster Inc. in May 2005 and, since then, the movie rental chain's stock price has plunged by about 75 percent.

Microsoft didn't respond to requests for comment Monday, but has previously indicated it remains interested in exploring a deal with Yahoo, especially if the negotiations were handled by a new board.

Having been repeatedly rebuffed by Yahoo so far, Microsoft has been reported to be discussing a possible acquisition of Time Warner Inc.'s AOL. Microsoft wants to strengthen its Internet business to challenge Google Inc.'s dominance of the online search and advertising market.

Standard and Poor's Internet analyst Scott Kessler doubts Microsoft will buy Yahoo, but interpreted the Icahn agreement as a sign that the current board realizes it needs to shake things up even more than Yang has already done since he became CEO 13 months ago.

"It makes it more clear to shareholders that Yahoo's board is amenable to new ideas and is willing to do what's necessary to get the business back on track," Kessler said.

Some shareholders still want more even more new faces on Yahoo's board after watching the company's market value plummet by more than 40 percent, or about $20 billion, since the end of 2005. All but one of Yahoo's directors--Maggie Wilderotter--have been on the board since 2005.

"I am still very angry at this board and I am sure other shareholders feel the same way," said Eric Jackson, who manages a hedge fund, Ironfire Capital, that's organizing a protest on behalf of about 150 Yahoo stockholders with about 3.2 million combined shares.

Jackson said his group plans to punctuate its displeasure by opposing the re-election of four Yahoo incumbents--Bostock, Ronald Burkle, Eric Hippeau and Arthur Kern. More than 30 percent of Yahoo's shareholders voted against Bostock, Burkle and Kern at last year's annual meeting, with Jackson leading the fight.

The shareholder angst could intensify if Yahoo's second-quarter earnings, due Tuesday, disappoint Wall Street. Analysts are bracing for a letdown after Google and Microsoft indicated last week that the deteriorating economy is hurting the online ad market.