June 19, 2008 / 7:39 PM / 10 years ago

Yahoo investor asks to weigh in on Microsoft offer

NEW YORK (Reuters) - An investor with a minority stake in Yahoo Inc on Thursday urged Microsoft Corp to take its most recent offer for a partial investment directly to Yahoo shareholders and prove its merits.

Microsoft runs across a news ticker above a Yahoo sign in New York City May 19, 2008. REUTERS/Joshua Lott

Mark Nelson, a partner in Mithras Capital, which owns 1.7 million Yahoo shares, said such a move by Microsoft would help shareholders gauge whether the proposal was truly superior to an advertising partnership Yahoo forged with archrival Google Inc.

“We have not been able to have our opinion heard,” Nelson told Reuters. “If (Microsoft) does indeed have a superior transaction they should flesh it out.”

Microsoft abandoned a $47.5 billion offer to buy all of Yahoo last month, but more recently discussed a transaction to take a 16 percent stake in Yahoo and buy its search business for $9 billion as it seeks a stronger foothold in online advertising. Talks broke down last week.

Microsoft said its alternate deal was still open for discussion, though Yahoo maintains that selling its search business would be tantamount to giving up on future growth in the wider online advertising market.

“It is our strong belief that there is an ideal solution to Microsoft’s current impasse with Yahoo: Microsoft must take its ‘alternate transaction’ ... directly to Yahoo shareholders via the upcoming proxy vote,” Nelson wrote in a letter he said was e-mailed and faxed to Microsoft Chief Executive Steve Ballmer.

Yahoo faces a proxy battle against billionaire investor Carl Icahn ahead of its annual shareholders meeting on August 1.

Icahn proposed a full slate of nine directors to replace Yahoo’s current board, though he initially launched his proxy battle to act as a catalyst for a Microsoft takeover deal.

Icahn has yet to say if he will change his strategy now that Microsoft appears to be out of the picture. He told Reuters early this week he was studying the Yahoo partnership with Google that aims to improve its financial performance.

Eric Jackson, another activist investor in Yahoo, this week proposed that shareholders vote for up to four Icahn board nominees rather than replace all the directors to preserve some stability at the company.

Nelson said he had not spoken with other Yahoo investors about his proposals, which include backing Icahn’s full slate.

“We’re a substantial Yahoo shareholder who has strong opinions,” Nelson said in an interview. “We believe we voice opinions that maybe other Yahoo shareholders have not thought about and may consider in the coming month.”

Yahoo says the Google deal could add as much as $450 million in operating cash flow within the first 12 months and leaves it open to working with other partners.

Microsoft has said its proposal would deliver an additional $1 billion a year in operating profit for Yahoo and value its stake in the company at $35 per share.

Microsoft declined to comment. Yahoo officials were not immediately available.

Yahoo shares closed down 18 cents to $22.73 on Nasdaq.

Additional reporting by Daisuke Wakabayashi in Seattle; Editing by Brian Moss, Phil Berlowitz

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