Carl Icahn's campaign to broker a marriage between Microsoft and Yahoo just got a lot more complicated -- and expensive -- thanks to the search ad outsourcing deal Yahoo struck with Google late Thursday.
According the deal's fine print, disclosed Friday by Yahoo in a Securities and Exchange filing, Google is free to tear up the pact if a majority of Yahoo's current board is replaced at the behest of a third party, such as Icahn, at either of the company's next two shareholder meetings.
Icahn, as of early Friday, still planned to present a hand-picked slate of pro-Microsoft directors for election at Yahoo's annual meeting next month. The billionaire corporate raider also has said that he would outsource Yahoo's search to Google if he gains control of the company but is unable to persuade Microsoft to rekindle merger talks.
It appears, however, that Google wants no part of an Icahn-controlled Yahoo. The search deal allows Google "to suspend performance of the services" if Yahoo's board is replaced by Microsoft, Time Warner, or News Corp. at any time, or if it's replaced within the next two meetings by "any other person or group."
Both News Corp. and Time Warner have been seen as possible Yahoo suitors in addition to Microsoft.
Additionally, Yahoo would have to pay Google up to $250 million in break-up fees if the agreement is terminated as a result of Microsoft, Time Warner, or News Corp. acquiring a 35% voting stake or more in Yahoo.
The break-up fee is just the latest reason why it's unlikely Icahn will be able to convince Microsoft to reopen merger talks with Yahoo, even if he wins his proxy fight.
While some might consider the $250 million fee pocket change for the world's largest software maker, it comes in addition to an expensive severance plan that would be triggered at Yahoo if a merger were to occur. The plan could add more than $2 billion to the cost of a deal.
Yahoo employees who are axed within two years of a change in control of the company would receive between four months and two years of regular pay. The package also includes reimbursement for the cost of outplacement services for up to two years, extended medical benefits, and accelerated vesting of stock options.
Icahn has said the plan would add $2.4 billion to the cost of a Microsoft-Yahoo merger and has labeled it a "poison pill" adopted by Yahoo's board to sabotage negotiations. That, along with the terms of the Google search deal, means that Icahn's only realistic move at this point may be to drop his fight for Yahoo.