SAN FRANCISCO - Activist investor Carl Icahn escalated his attacks on Yahoo Inc.'s beleaguered board yesterday in an acerbic letter demanding the directors scrap an employee severance plan that drove up the potential costs of a Microsoft Corp. takeover.
If Yahoo's board clings to the severance plan, Icahn indicated he will follow through on his 3-week-old threat to ask shareholders to fire the board at the Sunnyvale, Calif., company's Aug. 1 annual meeting.
That move would also target Yahoo chief executive Jerry Yang, who cofounded the Internet pioneer 14 years ago and pushed for the adoption of the severance program, which could trigger more than $2 billion in costs if Microsoft pulled off a successful takeover.
Microsoft chief executive Steve Ballmer withdrew an oral offer to buy Yahoo for $47.5 billion, or $33 per share, a month ago after Yang asked for $37 per share - a price that the company's stock hasn't reached since early 2006.
"One doesn't have to be a rocket scientist to realize there is a simple method" for luring another offer from Microsoft, Icahn wrote in a letter addressed to Yahoo chairman Roy Bostock. "Simply rescind the . . . 'severance plan,' which would free up approximately $2.4 billion and possibly even more, which could be added to the bid."
Yahoo had no immediate comment on Icahn's letter, but the board has repeatedly said it remains open to selling Microsoft at a price that recognizes the company's full value.
Icahn's estimate of the cost of Yahoo's severance plan is based on internal documents that were unsealed Monday as part of a shareholder lawsuit alleging Yang and the company's board improperly resisted a Microsoft courtship that began in August 2006.
The records revealed that Yang pushed for generous benefits to all 13,800 of Yahoo's employees if they are laid off or reassigned, despite the misgivings of the company's outside consultants.
Yang wanted protection for all Yahoo employees even though Ballmer had assured him Microsoft would set aside $1.5 billion to retain employees after a takeover, according to handwritten notes of a phone conversation between the two executives.
The plan, adopted 12 days after Microsoft made its initial bid Jan. 31 this year, guaranteed cash and stock payments to any employee who was fired or was reassigned to a new job within two years of a Microsoft takeover.
At Microsoft's initial bid of $31 per share, the severance plan would have imposed an additional $462 million to $2.1 billion. At $35 per share, the additional severance expenses would range from $514 million to $2.4 billion, according to Yahoo's documents.
Many industry analysts think Microsoft needs Yahoo badly enough to pay $35 per share, or about $50 billion. By buying Yahoo, Microsoft would obtain a potent weapon to thwart the growth of Internet search leader Google Inc.
Although it hasn't ruled out the possibility of reviving its takeover bid, Microsoft in recent weeks has been exploring a deal involving Yahoo's search operation. Yahoo president Susan Decker told an advertising conference yesterday the two sides remain in "active" discussions, though she didn't provide details.
Microsoft representatives didn't immediately respond to requests for comment yesterday.