Jerry Yang's No Fool

It's been a rough year so far for Yahoo. Microsoft tried a takeover, shareholders are suing left and right, and now Carl Icahn is buying up billions in shares in preparation for an investor revolt. Just as the odds are beginning to look insurmountable for Yahoo, we find out that the corner Mr. Yang has been backed into isn't quite as hopeless as it seems.

Way back when the Microsoft bid was just weeks old, Yahoo's board passed what looked like a safety net provision for executives and employees, should Microsoft's takeover have succeeded. In short, it grants extensive severance — between four and twenty-four months of salary — to anyone who is fired, leaves with a "good reason," or has their job changed within two years of a change in management. The cost of the plan, in the event all of Yahoo's nearly 14,000 employees were to walk out, could top $2 billion — nearly the same amount as the FTC cap on Icahn's investment.

It's now been revealed that the plan was not just a buffer against Microsoft — it's a Dr. Strangelove-esque Doomsday device, set to blow up in the face of anyone with the temerity to wrest control from the Yang camp. Should the Icahn camp prevail at August's shareholder meeting, the resulting layoffs, departures, and reorganization could cost the company more than four-times its current net income. That's a pretty strong bulwark against an ouster: "Stick with us, or see what happens to stock prices when $2 billion goes out the door."

Icahn, now facing an opponent with a much stronger hand, is reportedly livid that he's been out-oustered. Apparently, he fired off a letter today to Yahoo's board, demanding that the severance plan be retracted — under the terms of the plan, however, the board can't alter the plan unless it won't harm employees or the threat of a change in management has lapsed for 30 days. According to Icahn, if he doesn't get his way, he'll replace the lot of them in August — and trigger the very plan he's trying to avoid.