The plan was enacted by Yahoo’s current board and justified as a way of keeping employees in uncertain times. Uncertain times appeared with Microsoft’s unsolicited takeover bid in January. In case of acquisition, and later, in case of a shareholder coup on the board, the plan goes into effect, guaranteeing certain benefits to employees should they lose their jobs or resign "for good reason."

While Yahoo claims the plan will ultimately cost a potential acquirer between $500 million and $800 million, Icahn puts that figure at $2.4 billion, which he also cites as an acquisition deterrent. In a letter last week, Icahn said if he and other shareholders take control of the board in August, the severance/retention plan would be dismantled.

But Yahoo’s current board added a provision with irreversible language that puts the plan into effect in the event a new board takes command, a move critics say is intended to deter a board takeover. The July trial will determine the legality of this move.

A trial is thought to be bad news for Yahoo. Though retention/severance plans are not uncommon when hostile takeovers are involved, a trial could force out information Yahoo may be withholding—like Icahn’s claim that Bostock’s compensation advisor told him the retention plan was "nuts"—and it would put the onus on Yahoo to prove that the plan is in the best interests of shareholders.

Yahoo has defended the plan in that respect by noting that keeping good employees is tantamount to the success of the company, acquisition or not. 
 

In response to Bostock’s response to his criticism of the so-called "poison pill," an employee retention plan (Icahn calls it a "severance plan") to go into effect in the event of acquisition, Icahn penned a letter accusing Bostock of withholding information and generally kidding himself.

In the letter, Icahn reiterates his disapproval of the severance plan, promises the ousting of CEO Jerry Yang, and lays down a price for the whole shebang, should Microsoft decide it is still interested. Icahn says he found Bostock’s defense of the retention plan "humorous," yet little humor is to be found in the following passage:

"Roy, it is you who ‘misrepresents and misstates the details’ of the plan. Much like the rhetoric in many well known political campaigns, you keep repeating misstatements in the hopes that by repeating misstatements enough times it will convince your shareholders that these misstatements are valid."

Icahn disagrees with just about everything Bostock said in the previous letter, including what to call the plan, and whose course of action is "in the best interests of shareholders."

The retention/severance plan would cost an acquirer $2.4 billion, Icahn argued, and may cost more in productivity as employees looked for ways to get fired or cooked up a "good reason" to resign. In addition, Icahn accuses Bostock of not being fully upfront with shareholders:

"The egregious magnitude of the dollar amount cost of the plan was never fully disclosed, nor was the email from your compensation advisor calling the plan ‘nuts.’"

Ouch. Sounds like somebody just lost a racket ball buddy.

Icahn implied Microsoft lost interest in an acquisition once the plan was fully comprehended. In response to Bostock’s fear of what would happen if Icahn and his nominees took control of Yahoo, Icahn outlined five initial tasks:

1.  No poison pill.
2.  No Jerry Yang; he was supposed to be temporary anyway.
3.  No alternative transactions below $33 per share. Better, no alternative deals at all because Mr. Softy    is mean when he’s jealous.
4. No love like Microsoft love: Push the board into a karaoke rendition of "Baby Come Back."
5.  No Google escape hatch. If Microsoft really doesn’t want Yahoo anymore, then a search deal with Google will be pursued, but only if Google doesn’t get mad when Microsoft comes back to town.

In addition to a couple of more gut-punches aimed at Bostock, Icahn closed with a proposed price, available exclusively to Microsoft. "In my opinion, Microsoft does not believe you will ever sell the entire company on a friendly basis. So why don’t you stop dancing around the subject and publicly offer to sell the company to Microsoft for $34.375 per share and promise to cooperate completely?"

The only thing missing: Now get in the kitchen and make me a chicken pot pie!

After all that, Yahoo issued a paragraph of response:

"Leaving aside Mr. Icahn’s inaccurate interpretation of our retention plan, we again note that he has no credible plan to operate Yahoo!. We believe that Mr. Icahn’s suggestion that we cancel our retention plan would have a destabilizing impact on Yahoo! and would clearly not be in the best interests of our shareholders. Furthermore, his suggestion that we put out a price publicly to see if Microsoft will alter its stated position is ill-advised. As we have stated numerous times publicly and privately, we are open to any transaction including a sale to Microsoft if it is in the best interests of shareholders."

The August shareholder meeting should be interesting. Maybe the producers of MTV’s Real World should be on hand to capture the fireworks.

Read Icahn’s letter.

One imagines Bostock striking the keys with punctuated furor as he types, or spraying spittle as he dictates phrases like "seriously misrepresents," "grossly misstates," and "significantly mischaracterize," pausing only to sail another dart toward the photographic representation of Icahn’s proboscis. Yeah, a series of pricks for "a series of unsubstantiated allegations."

Bostock writes: "The claim that the plan gives each of Yahoo!’s employees ‘the right to quit his or her job and pocket generous termination benefits at any time during the two years following a takeover…’ is just plain wrong."

The retention plan, Bostock clarifies, requires that a change of control takes place "AND" an employee be fired without cause or resign for good reason. Since Microsoft was willing to set aside $1.5 billion for this plan, Bostock fails to see a problem.

He referred to Icahn’s assertions that Yahoo turned down a $40 per share offer and that they deliberately sabotaged a $33 per share offer as "patently untrue."

And then, there’s Icahn’s fantasy world: "You seem to be under the impression that somehow Microsoft will come back to the negotiating table for a full acquisition of Yahoo!," says Bostock, a notion he finds "puzzling" after Microsoft walked away and remained open only to smaller arrangements.

Acutely aware of Icahn’s corporate raider history (most sources these days call him an "activist investor"), Bostock closes with palpable exasperation:

"Conspicuously absent from your letter is any credible plan for Yahoo! other than a repetition of your insistence that the Company should sell itself to Microsoft. Indeed, your stated view that ‘the only way to salvage Yahoo! in the long if not short run is to merge with Microsoft’ demonstrates that you have no other plan and causes one to wonder what exactly would happen to our Company if you and your nominees were to take control of Yahoo!."

Bostock was diplomatic with the word "nominees" there, but the tone has the appropriate ring of "cronies." Indeed, corporate culture and pride are not part of Icahn’s strategy. It’s more a matter of how far a mule* can be stretched, as a whole or as the sum of its parts.

_{*Some less squeamish translations have this word as "whore," but decorum prevents.}