Category: Articles

In this section Mr. Liveris and I discuss US energy policy (or lack thereof) and

Todd:
US energy policy. I had several questions planned here but you have been all over TV the last week and a half answering them for me..

Andrew:
(Laughing) And I am not done yet, I am determined to shake this all loose because we are just shooting ourselves in the foot very effectively as a nation.

Todd:
There was an “American Energy Production Act” Senate Republicans just introduced recently, have you seen it?

Andrew:
The drilling one right?

Todd:
Yes, they said it would produce an estimated 24 billion barrels of oil a day and 47 trillion cubic feet of nat. gas.

Andrew:
Certainly the bill recognizes the problem. It is a Republican bill and certainly I appreciate Senator Domenici’s work on it. However, the country need a bill both Democrats and Republican can support

I was in Washington yesterday and I had meeting after meeting. I actually think I might get deported here eventually [laughter] . You know I’m just screaming from the rooftops to get real with our energy policy.

Todd:
Let’s say you left Washington and they said “this guy is right, let’s do everything he said we should”. Even if they did that and they started at the earliest next spring, after the election, what kind of lag based on your experience is it 2 years, 5 years before anything they do now actually takes hold and excess production comes online.

Andrew:
Well we went through this in 2005 with the Lease Sale 181 in the inter-continental shelf of the US. The US gulf we were told that time and I think this is still very true that there are some known fields of oil and gas that can easily be tapped into current infrastructure especially on the US gulf they could be on the street in 12-18 months. Not as big as the numbers you just quoted, because on the outer edge that would be Anwar and that could be as far away at 4-5 years because of the pipeline.

We take a window and if you said “let’s go now” I think the earliest is 18 months and the latest is five years. But something else happens which is very important. The world as speculators look at supply very differently. We have a real supply issue because demand is surging and everyone thinks that there is not enough supply. Supply is bottle-necked in two places. One is availability of actual oil and gas of course in our Country we’re not accessing it and it will take 18 months to five years to accomplish that. Overseas its ships and freight and there are not enough ships on the water to get all this oil to everyone to get all this gas to everyone. So that’s one bottleneck.

The second bottleneck is refining capacity which as you know this country won’t permit refineries. I think the only one under construction today is Valero’s (VLO) in Texas. No one wants a refinery in their back yard. So you have this ridiculous situation of Reliance building the world’s largest refinery in India and all the products are for exporting to the United States.

So those two bottlenecks will take several years, if you take those two bottlenecks out by passing laws, I think there will be an instantaneous reaction to price.

Part Three: Dow Ag

Disclosure (“none” means no position):Long Dow, None

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In an SEC filing Bruce Berkowitz of Fairholme funds continued selling TAL International (TAL) selling 24,000 shares at $26.68 bringing his total holdings down to 2.463 million shares.

It was the second SEC sale filing in a week in the company.

Disclosure (“none” means no position):None

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The week’s top insider transaction by dollar amounts.

Community Bankers Acquisition Corp (BTC)- $4,675,000
Information Services Group Inc (III)- $3,075,000
eLoyalty Corp (ELOY)- $2,297,000
Pharmacyclics Inc (PCYC)- $2,082,000
TCF Financial Corp (TCB)- $2,009,000
Perini Corp (PCR)- $1,887,000
Marchex Inc (MCHX)- $1,815,000
Powerwave Technologies Inc (PWAV)- $1,604,000
Enterprise Products Partners L P (EPD)- $1,557,000
Align Technology Inc (ALGN)- $1,467,000
Huntsman Corp New (HUN)- $1,270,000
Dick’s Sporting Goods Inc (DKS)- $1,254,000
ev3 Inc (EVVV)- $1,066,000
Insight Enterprises Inc (NSIT)- $1,021,000

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The week’s top insider transaction by dollar amounts.

Community Bankers Acquisition Corp (BTC)- $4,675,000
Information Services Group Inc (III)- $3,075,000
eLoyalty Corp (ELOY)- $2,297,000
Pharmacyclics Inc (PCYC)- $2,082,000
TCF Financial Corp (TCB)- $2,009,000
Perini Corp (PCR)- $1,887,000
Marchex Inc (MCHX)- $1,815,000
Powerwave Technologies Inc (PWAV)- $1,604,000
Enterprise Products Partners L P (EPD)- $1,557,000
Align Technology Inc (ALGN)- $1,467,000
Huntsman Corp New (HUN)- $1,270,000
Dick’s Sporting Goods Inc (DKS)- $1,254,000
ev3 Inc (EVVV)- $1,066,000
Insight Enterprises Inc (NSIT)- $1,021,000

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Adam, Lehman, Barnes & Noble, Blackberry beats iPhone

– Adam Warner is a tremendous judge of writing

– They are toast

– Can’t argue

– Is anyone really surprised?

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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.
———————————————————

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

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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.
———————————————————

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

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Primary, Touch, Oil, Settled

– All over but the pouting

– Looks pretty neat

– Bubble?

– So, they really did do it

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Primary, Touch, Oil, Settled

– All over but the pouting

– Looks pretty neat

– Bubble?

– So, they really did do it

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Upgrades
Phoenix Tech (PTEC)- Dougherty & Company Neutral » Buy
Cache (CACH)- Roth Capital Hold » Buy
TCF Financial (TCB)- Stifel Nicolaus Hold » Buy
CVB Financial (CVBF)- Credit Suisse Neutral » Outperform
Zoran (ZRAN)- Lazard Capital Hold » Buy
Vertex Pharm (VRTX)- Cowen & Co Neutral » Outperform
First Cash (FCFS)- Roth Capital Hold » Buy
Cogent Communications (CCOI)- RBC Capital Mkts Sector Perform » Outperform
Trex (TWP)- Sun Trust Rbsn Humphrey Neutral » Buy
Hot Topic (HOTT)- Friedman Billings Mkt Perform » Outperform
Royal Bank of Scotland (RBS)- Citigroup Hold » Buy
Northwest Airlines (NWA)- Lehman Brothers Equal-Weight » Overweight
UAL Corp. (UAUA)- Lehman Brothers Equal-Weight » Overweight
UAL Corp. (UAUA)- Soleil Sell » Hold
Cortex Pharm (COR)- Rodman & Renshaw Mkt Underperform » Mkt Perform

Downgrades
Integral Systems (ISYS)- Feltl & Co. Buy » Hold
Carpenter Tech (CRS)- JP Morgan Overweight » Neutral
Indevus Pharm (IDEV)- Ladenburg Thalmann Buy » Neutral
F5 Networks (FFIV)- Kaufman Bros Buy » Hold
Adobe Systems (ADBE)- Cowen & Co Outperform » Neutral
Regeneron Pharms (REGN)- Credit Suisse Outperform » Neutral
RSC Holdings (RRR)- UBS Buy » Neutral
United Rentals (URI)- UBS Buy » Neutral
H&E Equipment Srvs (HEES)- UBS Buy » Neutral
Hercules (HPC)- Jefferies & Co Buy » Hold
VeriSign (VRSN)- JP Morgan Overweight » Neutral
Haynes Intl (HAYN)- JP Morgan Overweight » Neutral
Allegheny Tech (ATI)- JP Morgan Overweight » Neutral
American Wdmrk (AMWD)- Robert W. Baird Outperform » Neutral
Parker-Hannifin (PH)- UBS Neutral » Sell
Caterpillar (CAT)- UBS Neutral » Sell
Kennametal (KMT)- UBS Neutral » Sell
PACCAR (PCAR)- UBS Neutral » Sell
Motorola (MOT)- Oppenheimer Perform » Underperform
Navistar (NAVZ)- UBS Buy » Neutral

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