Icahn says Yahoo-Google ad deal has merit

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007.

NEW YORK (Reuters) - Billionaire financier Carl Icahn, who launched a proxy battle in May to replace the board of Yahoo Inc (YHOO.O) in the wake of its failed deal to be acquired by Microsoft Corp (MSFT.O), said on Sunday the subsequent deal Yahoo forged with Google (GOOG.O) "might have some merit."

"While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it, and it might have some merit," Icahn told Reuters in his first public comments since Yahoo disclosed the Google ad-sharing deal on Thursday.

Icahn declined to comment on whether he would continue to press his proxy battle to replace the board of Yahoo in light of the fact that the company has done a deal with Google.

The pact comes with extensive "change of control" provisions that allow Google or Yahoo to terminate the deal in the event that Yahoo is acquired or if a majority of its board is replaced at its upcoming annual shareholders meeting in August.

Thus, if Icahn wins his proxy battle and changes the board of Yahoo, Google has the right to walk away from a deal that Icahn favors as an alternative to an all-out acquisition.

Ichan hinted that the change of control provision might be sufficient reason to pull back on his campaign to replace the Yahoo board. Alternatively, Icahn could accept minority board representation which may not prompt Google to walk away.

The investor, who holds about 59 million shares, or more than 4 percent of Yahoo, said that a Google deal was preferable to having Microsoft take control of Yahoo's search operations as the software company proposed after Yahoo rejected its $47.5 billion bid to acquire the whole company.

"I continue to be extremely disappointed with the Yahoo management, but the Google deal might have some merit and seems to be better then the alternative deal proposed by Microsoft," said Icahn in a telephone interview with Reuters.

(Reporting by Dane Hamilton, Editing by Jacqueline Wong)