Icahn’s Latest Letter to Yahoo (YHOO)

ToddSullivan
June 6th, 2008

Yahoo (YHOO) cannot beat Icahn at this game. They know that, right?

Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Roy:

While you may take issue with the content of my letter, I take issue with
your oversight of Yahoo! Again, I stand by my characterization of your “poison
pill” severance plan and I find it humorous to see you attempt to defend it.

Roy, it is you who “misrepresents and misstates the details” of the plan.
Much like the rhetoric in many well known political campaigns, you keep
repeating misstatements in the hopes that by repeating misstatements enough
times it will convince your shareholders that these misstatements are valid. For
example, you repeated, “the plan was fully disclosed at the time of its adoption
and should be no surprise to anyone at this point.” This is simply not true. The
egregious magnitude of the dollar amount cost of the plan was never fully
disclosed, nor was the email from your compensation advisor calling the plan
“nuts.” While you keep repeating that the severance plan was in the “best
interests of shareholders”, you neglect to mention that the financial cost of
the plan could be immense. The documents obtained during discovery and released
in the shareholder complaint show that Yahoo! estimates the maximum change in
control severance expenses to be a staggering $2.4 billion if Microsoft bids $35
per share for Yahoo! You neglected to mention that the true cost to an acquirer
may be even higher as the perverse change in control severance incentives may
diminish the work effort of Yahoo! employees. In case you do not understand the
plan, in addition to the $2.4 billion of severance expenses, I believe the plan
will negatively impact employee behavior and degrade the ability of an acquirer
to successfully integrate the acquisition. In the event of a change of control,
the employee may decide not to work as hard in the hopes of cashing in on a
robust severance package that awards up to two years salary and benefits,
$15,000 of outplacement expenses, and accelerated vesting of stock options and
restricted stock units. To make matters worse, it is not just the acquirer
firing the employee that can trigger the severance package but the employee who
may decide on his or her own to resign for “good reason” at any point within two
years of a change in control. It is quite obvious to me that this plan impacts
the price an acquirer would pay. Is it any wonder than an acquirer, once fully
comprehending this plan, might not wish to negotiate any further? I again call
upon you to honor your fiduciary duty to your shareholders and rescind this
“poison pill” severance plan.

You asked, “what exactly would happen to our Company if you and your
nominees were to take control of Yahoo!” I will give you my perspective on that.

o First, I would work to have the board replace your “poison pill”
severance plan with an acceptable alternative.

o Second, I intend to ask our new board to hire a talented and
experienced CEO (attempting to replicate Google’s success with Eric
Schmidt) to replace Jerry Yang and return Jerry to his role as “Chief
Yahoo”. Indeed, it was much speculated that Jerry would serve in the
CEO role temporarily until a permanent CEO was hired after the board
asked Terry Semel to resign.

o Third, I intend to ask our new board to inform Microsoft that unless
any alternative transaction can insure a $33 or higher stock price (of
which I am skeptical) all talks of alternative transactions are over.

o Fourth, I will ask our new board to offer publicly to sell Yahoo! to
Microsoft in a friendly and cooperative transaction.
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o Fifth, to the extent Microsoft does not want to make a proposal, I
will ask our new board do a deal on search with Google, but only if it
contains termination provisions that would in no way impede a
subsequent acquisition by Microsoft.

Now let me ask you a couple of questions, Roy:

o Why don’t you, now that you have the opportunity, remove the “poison
pill” severance plan that I find to be ridiculous and thereby remove a
major obstacle to a Microsoft acquisition?

o In my opinion, Microsoft does not believe you will ever sell the
entire company on a friendly basis. So 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?

o Why are you still giving hope to Microsoft that there is a possible
“alternative deal”? As long as there is the possibility of an
“alternative deal”, isn’t it obvious that Microsoft will not make a
bid for the whole company?

Sincerely yours,

CARL C. ICAHN

Disclosure (“none” means no position):None