Investors laud Icahn's Yahoo move and promise support

The headquarters of Yahoo Inc. is shown in Sunnyvale, California May 5, 2008.

BOSTON (Reuters) - To many Yahoo Inc investors still angry that a takeover bid by Microsoft Corp fell apart, activist investor Carl Icahn is a knight in shining armor mounting a proxy fight they expect to support.

"I would not have predicted this would happen, but when I saw the news, I thought 'this fits'," said Kevin Landis, chief investment officer at Firsthand Capital Management, which holds nearly 1 million Yahoo shares, based on recent public filings.

"This is good, this is really good," said a large West Coast-based Yahoo investor who, like several others, asked not to be named in order to speak candidly about their plans.

On Thursday morning, Icahn added the latest wrinkle to the Yahoo takeover saga -- now in its fourth month in the public eye -- when he named 10 men, including himself, to unseat the current Yahoo board.

It is not the first move in technology for the corporate-battle-scarred billionaire. Only last year, a threatened proxy fight by Icahn helped prompt the sale of BEA Systems to Oracle Corp, completed last month.

While money managers across the country pored over what the star-studded slate -- including a Harvard Law School professor, a prominent money manager and a basketball team owner who once sold a company to Yahoo -- might bring to the table, some said Icahn alone would be the catalyst for change.

"He will force (Yahoo) to give shareholders the premium that Microsoft offered," Firsthand's Landis said, remembering the investor's bare-knuckle tactics that have unnerved many U.S. corporate executives.

Microsoft's $33-a-share offer collapsed this month. Yahoo shares closed at $27.75 on Thursday.

Several investors said they were angry that Yahoo's board let a potentially good deal slip away due to price differences, and that they are ready to vote in newcomers to the board.

"The main reason the deal didn't get done was because of some really obstinate Yahoo directors, and with some new faces around the table that logjam might be broken more easily," a large New York-based investor said.

People also said the slate's makeup could suggest Icahn has the support of Yahoo's top two investors at money managers Legg Mason and Capital Research.

Brian Posner, who until recently ran Legg Mason's ClearBridge Capital Advisors LLC unit and surely knows Legg Mason fund manager Bill Miller, Yahoo's second-largest investor, is one of the names on Icahn's slate.

Miller, who has made his irritation that the deal collapsed known, did not return calls seeking comment on Thursday.

While many investors were generally optimistic about Icahn's plans, they also acknowledged that it might take months or longer to rekindle any sort of negotiation with Microsoft. They argued the software company probably would not be tempted to return to the table until Yahoo's share price fell again.

A proxy fight might take weeks or months, leaving investors facing even more uncertainty over where the stock is headed.

Some investors have piled in. John Paulson, whose hedge fund was last year's top performer due to mortgage portfolio bets, has built up a stake of 50 million shares in Yahoo in recent months, according to sources familiar with the matter.

The $30 billion fund, Paulson & Co, said on Thursday it intends to support Icahn's board slate, but hopes a proxy fight won't be necessary to get Yahoo and Microsoft talking again.

Other investors said they had bailed out of Yahoo's stock, preferring to lock in recent gains and unwilling to wait out what may be a long battle.

"Yahoo's stock price should either be in the mid-$30 range with a transaction or be in the low-$20 range without a transaction," Firsthand's Landis said. "It should not be trading where it is right now in this situation."

(Additional reporting by Dane Hamilton in New York; Editing by Braden Reddall)