Icahn Would Hand Yahoo Search To Google If No Microsoft Deal

If corporate raider Carl Icahn gains control of Yahoo through a proxy fight, he would outsource the Web giant's search advertising operations to Google if he's unable to broker a merger with Microsoft.

Taking a page from Yahoo CEO Jerry Yang's own playbook, Icahn, in a letter to Yahoo chairman Roy Bostock, said that if Microsoft doesn't come back to the table he would "ask our new board to do a deal on search with Google."

But Icahn said he would make the move "only if it contains termination provisions that would in no way impede a subsequent acquisition by Microsoft," according to a copy of the letter that Icahn filed with the Securities and Exchange Commission.

Yahoo recently announced that it would hand off some search operations to Google under a trial program. The strategy would allow Yahoo to focus on its market-leading Internet portal and display advertising operations, while ceding its lagging search business to its rival.

Icahn's first priority, however, is to force Yahoo into reopening the merger talks with Microsoft that broke off last month. Icahn said he would reopen exclusive merger negotiations with the software maker at $33 per share, which reflects Microsoft's most recent formal offer for Yahoo.

If Icahn is successful in his attempt to replace Yahoo's board, he would also seek Yang's removal as CEO. "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,' " Icahn wrote, perhaps sardonically.

Icahn also blasted Yahoo for adopting an employee severance program that he said could add up to $2.4 billion to the cost of a takeover of the company. To retain workers during merger talks, Yahoo has pledged to give staffers up to two years of salary and benefits if they leave Yahoo within two years of a merger.

Icahn also said the severance program could undermine productivity at Yahoo. "In the event of a change of control, the employee may not work as hard in the hopes of cashing in," said Icahn.

Icahn has previously said he was "recruited" to lead a proxy fight against Yahoo's board by investors unhappy with the company's refusal to accept Microsoft's bid. Icahn has purchased 59 million Yahoo shares and share-equivalents in recent weeks and has asked the Federal Trade Commission for permission to buy up to $2.5 billion worth of Yahoo stock in total.

Icahn has also assembled an alternate board that he plans to present for election at Yahoo's shareholder meeting, now set for late July.

Icahn's slate includes himself, former Viacom CEO Frank Biondi, Dallas Mavericks owner Mark Cuban, and Adam Dell, the brother of PC magnate Michael Dell. Also on the list are Lucian Bebchuk, John Chapple, Keith Meister, Edward Meyer, Brian Posner, and New Line Cinema co-CEO Robert K. Shaye.