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Originally published Monday, June 9, 2008 at 12:00 AM

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Icahn has plenty on line in Yahoo, Microsoft deal

Investor Carl Icahn became a billionaire by bullying already distressed companies, but his harassment of Yahoo could leave him with a black...

The Associated Press

SAN FRANCISCO — Investor Carl Icahn became a billionaire by bullying already distressed companies, but his harassment of Yahoo could leave him with a black eye — and a hole in his wallet — if he's wrong about Microsoft's desire to buy the Internet pioneer.

Icahn, 72, has used a combination of guile, gall, grit and gamesmanship to get his way more often than not since he began targeting vulnerable companies 30 years ago. The conquests helped Icahn build an estimated fortune of $14 billion after starting out on Wall Street with a $4,000 bankroll from his winnings playing poker.

His roll call of stock-market successes includes profitable showdowns with Marshall Field, Phillips Petroleum, Texaco, USX and, most recently, BEA Systems.

There have been flops, too: the now-defunct TWA and Blockbuster, whose stock has lost nearly two-thirds of its value since Icahn bought a stake in the company in 2005 and muscled his way on to the board.

Having spent more than $1 billion for a 4.3 percent stake in Yahoo, Icahn has made one of his biggest bets yet.

The payoff — or possible loss — will hinge largely on the irascible financier's matchmaking skills as he tries to patch up a tiff between two fellow billionaires, Microsoft Chief Executive Steve Ballmer and Yahoo CEO Jerry Yang.

If he can't persuade Ballmer to change his mind and renew his pursuit of Yahoo, Icahn could find himself holding a losing hand as investors bail out of Yahoo's stock.

"There may be some unintended consequences to Icahn's actions that he hasn't fully thought about," said Dennis Carey, senior client partner for Korn/Ferry, which specializes in recruiting chief executives and board directors for corporate boards.

Icahn hasn't returned repeated phone messages left by The Associated Press during the past three weeks.

It's doubtful Icahn — an avid chess player who majored in philosophy at Princeton University — hasn't considered the risks of his Yahoo gamble, according to his biographer, Mark Stevens, who wrote "King Icahn" in 1993.

"He is always thinking 10 moves ahead of the other guy," said Stevens. "He looks at business through the lens of Socrates and Nietzsche as opposed to how it was taught in Harvard Business School."

Yahoo found itself in Icahn's cross hairs after Microsoft withdrew a $47.5 billion takeover offer for one of the Internet's best-known franchises.

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Like many investors and analysts, Icahn is convinced Yahoo sale's to Microsoft represents those two companies' best chance to mount a more serious challenge to Internet search and ad leader Google.

But Ballmer reasoned a takeover wasn't in the cards after Yang told him the board didn't want to sell for less than $37 per share, or more than $52 billion.

Unless Ballmer wavers from that stance, Icahn could wind up in a tough spot when Yahoo's annual meeting rolls around Aug. 1.

If Yahoo shareholders are angry enough to oust the board for its handling of the bid, Icahn and eight other men he has nominated as alternative directors could wind up trying to figure out a way to accelerate Yahoo's growth in the booming Internet ad market.

That's a problem Yang hasn't been able to solve in the year since he took over as CEO from Terry Semel, whose own turnaround efforts had stalled badly.

Icahn has promised to fire Yang and replace him with a more experienced leader in the mold of Google CEO Eric Schmidt while still trying to lure Ballmer back to the negotiating table.

The uncertainty raised by a boardroom coup might cause Yahoo's stock price to sink, saddling Icahn with substantial losses.

Even if Yahoo's directors keep their jobs, most analysts think Yahoo shares are likely to fall below the prices Icahn paid for them if there's no hope for a Microsoft takeover.

When Icahn began accumulating his stake in Yahoo, the stock was trading between $22.97 and $26.84 — well above its price of $19.18 before Microsoft made its Jan. 31 bid.

Icahn thinks Yahoo might be able to fetch $49.5 billion, or $34.375 a share, from Microsoft. Yahoo shares ended last week at $26.44.

In a scathing letter he sent to Yahoo Chairman Roy Bostock on Friday, Icahn wrote: "Why don't you stop dancing around the subject and publicly offer to sell the company to Microsoft for $34.375 per share and promise to cooperate completely?"

Yahoo said declaring an acceptable sales price for the company would be "ill-advised." Microsoft had no comment about Icahn's suggested target price.

Icahn's experience as a child of modest means in New York's Queens borough still drives him, Stevens said. While growing up, Icahn developed a deep resentment of the elite, an attitude reflected in his acerbic attacks on CEOs and their perceived cronies on corporate boards.

"He used to say he couldn't wait to ruin their golf games at their country clubs and pour vinegar in their martinis," Stevens said.

Yet Stevens thinks Icahn's own ego may have blurred his judgment and caused him to thrust himself into the saga between Yahoo and Microsoft.

While Yahoo fits Icahn's preference for targeting companies under shareholder siege, he bought his stake while Yahoo shares were well above their 52-week low of $18.58 — a price that reflected investors' worries that the company is destined to fall further behind Google in the lucrative Internet ad market.

Icahn usually snaps up stock when it's in a trough. "I think he may have blown it this time," Stevens said.

Making Icahn seem even more exposed, technology appears to be a blind spot. He reportedly doesn't like e-mail and his public comments make it clear he doesn't understand the industry jargon.

But Icahn didn't have to be a technophile to help engineer BEA's sale to rival software maker Oracle for $8.5 billion this year. Oracle had pulled an earlier offer of $6.7 billion, or $17 a share, after BEA demanded $21 a share.

Icahn helped resurrect the talks a few weeks later, culminating in Oracle's agreement to pay $19.375 a share, 52 percent above BEA's stock price on the day before Icahn first disclosed his stake in the BEA.

That deal probably wouldn't have happened without Icahn's involvement, according to a person familiar with the BEA talks.

Now many market observers are hoping Icahn can bridge the gap separating Microsoft and Yahoo.

"You need someone to make the case for the deal and so far [Icahn] is doing a good job," said Espen Eckbo, director of the Center for Corporate Governance at Dartmouth University's Tuck School of Business. "As a small shareholder, I would be very happy to have him around."

Information from USA Today was included in this report.

Copyright © 2008 The Seattle Times Company

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