June 10th, 2008
Yahoo: Our poison pill isn't 'nuts'; Icahn guessing at plan costs
Yahoo in an SEC filing fired its latest volley at billionaire activist investor Carl Icahn and defended its employee compensation plan.
The company, embroiled in a proxy war with Icahn, outlined an FAQ that it sent employees. The key excerpts:
Mr. Icahn says this Plan costs $2.4 billion. Is that what it actually costs?
No. An estimate of the amount, if any, payable under the Plan requires making assumptions about unknown facts and variables including: (1) the number of employees who terminate employment without Cause or for Good Reason within the two years following any Change in Control, (2) each such employee’s job level and base salary, (3) the number of equity awards held by each such employee on their respective severance date, the portion of those awards that are not otherwise vested on that date, and the applicable exercise price of any option awards, (4) the market price of the Company’s common stock at the time such awards are ultimately exercised or paid, and (5) the length and level of reimbursement for health care benefits and outplacement services utilized by each such employee.
Mr. Icahn quotes the $2.4 billion estimate, taken out of context, from a complaint filed in litigation against the company. This number is necessarily based on a number of assumptions, including the assumption that all of Yahoo!’s employees are terminated without Cause or leave for Good Reason following a Change in Control. No one believes that such an assumption is reasonable. For the record, the same preliminary analysis referenced in the lawsuit and relied on by Mr. Icahn and using the same assumptions (including a $35 per share stock price) as those underlying the $2.4 billion figure showed that the total payout would be $845 million or $514 million, assuming that 30% or 15% of the employees, respectively, are terminated without Cause or leave for Good Reason following a Change in Control.
Did Yahoo!’s compensation consultant say that the Plan is “nuts”?
No. As indicated above, estimating the cost of the Plan requires making a number of assumptions. Timothy J. Sparks, the president of Compensia, Yahoo!’s compensation consultant firm, explained in a sworn deposition that he used the word “nuts” to describe his opinion of using the assumption that 100 percent of Yahoo!’s employees would actually receive the severance benefits under the Plan to determine cost estimates. Mr. Sparks made clear in his deposition that his remark did not relate to the design or cost of the Plan.
Yes folks, this battle has devolved into the definition and context of the word “nuts” and the rest is the regular Yahoo said, Icahn said.
The saga thus far–for those of you that track love letters between Yahoo and its chatty billionaire:
- Icahn miffed at Yahoo response; Has Google envy too
- Why Internet companies are attractive takeover targets: They can’t manage
- Icahn on Yahoo: I’d hire a ‘talented and experienced’ CEO
- Carl and Yahoo’s dueling banjo routine gets old
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
For daily updates, follow Larry on Twitter.
Subscribe to Between the Lines via Email alerts or RSS.
