Yahoo (NASDAQ: YHOO) is recently down 45 cents to $22 in pre-open trading.

YHOO announced it reached an agreement with Carl Icahn to settle their proxy content. Under the terms of the settlement agreement, Carl Icahn will be appointed to YHOO's board of directors. YHOO Q2 EPS are scheduled for July 22. YHOO annual shareholder meeting is scheduled for August 1st.

YHOO August option implied volatility of 77 is above its 26-week average of 45 according to Track Data, indicating larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

The New York Times reports that Friday night Microsoft Corp. (NASDAQ: MSFT) and Carl Icahn made an offer for Yahoo! (NASDAQ: YHOO). The offer was for Microsoft to buy Yahoo's search business and for Icahn to buy the rest of Yahoo!

Icahn and Microsoft gave Yahoo! 24 hours to decide. But Yahoo! took "four or five hours" to reject the offer. The Times quotes Yahoo! chairman, Roy Bostock who said: "It is ludicrous to think that our board could accept such a proposal. While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders."

I am not sure what the terms of this latest offer were. But it seems foolish of Microsoft and Icahn to make an offer and give Yahoo! only 24 hours on a weekend to decide. I wonder whether they're simply trying to annoy Yahoo! and expect that their tactics will encourage its board to resign in frustration so Icahn won't need to spend more money trying to throw them out.

MAJOR PAPERS:

• Corporate advertisers are not flocking to YouTube despite the fact that the video sharing site attracts one billion views a day, upsetting Google Inc's (NASDAQ: GOOG) expectations for a strong revenue stream, according to the Wall Street Journal. Total ad revenue for Google this year will be about $200M from the site, where the company is counting on growth beyond its text ads from Web searches.
• A day after Microsoft Corporation (NASDAQ: MSFT) said it would be interested in reopening talks to acquire some of all of Yahoo! Inc (NASDAQ: YHOO) if Carl Icahn's proxy battle succeeds, the Wall Street Journal reported that Yahoo! CEO Jerry Yang accused Microsoft of "trying to destabilize" the company "without a real desire to complete a deal".

OTHER PAPERS:

• The Atlanta Journal Constitution reported that Comair, a subsidiary of Delta Air Lines Inc (NYSE: DAL), is set to cut 300 pilots and 220 flight attendants from its staff. The paper said the layoffs will go into effect in September when Comair cuts its flight schedule as part of Delta's capacity cuts and will affect crew members based at Cincinnati/Northern Kentucky International Airport and New York's John F. Kennedy International Airport.

WEB SITES:

• Iran successfully test-launched a long-range version of its Shahab-3 missile, according to Iranian news service Al-Alam. The missile can reach U.S. military bases in the Persian Gulf and Israel.

It seems that not a day goes by without some news regarding one of the largest deals Wall Street is following intently these days, InBev's $46 billion hostile takeover bid for Anheuser-Busch Cos Inc. (NYSE: BUD).

Not long ago, Reuters reported that Anheuser-Busch filed a suit Monday against InBev NV, calling the brewer's takeover attempt an "illegal plan and scheme" to acquire Anheuser "at a bargain price."

It isn't surprising the Budweiser maker has filed a suit. Only last week, when A-B officially rejected InBev's $46 billion offer, the latter filed a suit of its own as well as launched a proxy battle, filing a consent solicitation with regulators seeking to replace Anheuser's board. Anheuser's suit seeks an injunction to stop InBev's attempts to replace its board. Anheuser says it wants first to make sure certain alleged false and misleading statements are fixed.

From the lawsuit (pdf file) it seems that some of the misleading statements Anheuser is complaining about have to do with InBev's financing possibilities and its plans for the company once it is taken over. I don't normally read litigation documents, but the language here seems quite strong with allegations even of rumor mongering. Judge for yourself:

While calling Arthur Levitt's tenure as chairman of the Securities & Exchange Commission ineffective would be an understatement, he could, and still can, be relied upon to say the right thing. Now that the SEC finally has the quorum necessary to take action on a variety of issues, they should take Levitt's advice about proxy access changes.

Earlier this year the SEC made it impossible for shareholders to change the way directors are elected -- one of the most anti-investor events in recent history -- and it's time for that to change. Levitt writes in The Wall Street Journal that "While not a panacea, giving shareholders a bigger voice in the companies they own would go a long way in helping to restore trust."

Exactly. Some critics of strong corporate governance say that the SEC shouldn't meddle in these affairs. I basically agree: but the problem is that the SEC has meddled, making it impossible for shareholders to take control of their own companies when necessary.

The board of Anheuser-Busch Cos. (NYSE: BUD) has unanimously rejected InBev NV's $46.35 billion takeover bid, calling it "financially inadequate." So now, will we have a hostile takeover fight?

So far, we had InBev putting in the offer and Anheuser-Busch taking its sweet time to reply while trying to thwart the offer by talking to Groupo Modelo. If Anheuser can manage to buy the remaining 50% of Modelo, it would be too big for InBev to swallow. Thursday, though, Anheuser finally replied. Unanimously, no less. I wonder if somewhere around that boardroom full of directors, one at least represented the interests of BUD's second largest shareholder, Warren Buffett's Berkwhire Hathway (NYSE: BRK.A).

In response, InBev said it might ask Anheuser shareholders to unseat the whole board. InBev filed suit "seeking a judgment to confirm that shareholders acting by written consent could remove all of Anheuser's directors without cause." I'd say they might even have cause. The $65 per share offer represented a 35% premium at the time. What's so "financially inadequate" about that?

Well, as Anheuser Chairman Patrick Stokes said, the offer undervalues the Bud Light and Budweiser brands, which he calls iconic. Whatever he calls them, they are the top two selling beer brands in the world. He also said InBev undervalues BUD's growth prospects. Well, if Anheuser could restructure on its own, it should have done so by now and not wait until it was up against the wall with its shareholders. The plans it has and wants to put in place will take a while to bear fruits no doubt.

As InBev has stated, it'd rather take over BUD under friendly terms (a bit of an oxymoron there, but that's the business world). Otherwise, it could either take the tender offer directly to shareholders or get into a fight similar to that Icahn has on his hands with Yahoo! Inc. (NASDAQ: YHOO)'s board, which may not be pretty. Replacing a whole board for a new slate can, and will, get ugly. Or it can do both.

If InBev decides to play nice after all, it may have to raise its bid. Maybe they should all chill and drink a Molson (NYSE: TAP). Things will look better after a few...

MAJOR PAPERS:

• According to Yahoo! Inc (NASDAQ: YHOO), the Wall Street Journal reported that a severance plan investor Carl Icahn said is "excessively expensive" would come into play if Icahn is successful in his plan to take control of the company's board; Yahoo! maintained that the plan is structured to prevent Yahoo! from altering or dismantling it while under a proxy challenge.
• The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) almost reached a strategic deal with a group of Korean financial institutions as part of its recent capital raising initiative, and the investment bank may still sign an agreement with the Korean companies this year, inside sources said.
• According to the Financial Times, Merrill Lynch & Co Inc (NYSE: MER), UBS AG (NYSE: UBS) and Citigroup Incorporated (NYSE: C), which are most exposed to MBIA Inc (NYSE: MBI) and Ambac Financial Group Inc (NYSE: ABK), are facing further write downs of up to $10B after the bond insurers lost the battle to keep their triple A credit ratings in tact.
• A source familiar with the matter told dealReporter that Barnes & Noble Inc (NYSE: BKS) is conducting due diligence, but has not established whether it will competitively bid for Borders Group Inc (NYSE: BGP). Should Barnes & Noble indicate real interest, the biding process could be delayed, the source said.

OTHER PAPERS:

• The Detroit News reported that Ford Motor Company (NYSE: F), in an effort to keep up with changing consumer demand in the U.S., is assembling a plan that will shift entire truck plants to car production.

MAJOR PAPERS:

• UBS AG (NYSE: UBS) won't comment on write-down estimates, but according to the Wall Street Journal, investors are expecting it as prices for mortgage securities have significantly gotten worse over the past several weeks as evidenced by Lehman Brothers Holdings Inc (NYSE: LEH) profit warnings.
• Yesterday Lehman's stock fell 8.7% as the firm announced a projected $2.8B second quarter loss and a $6B capital raise. Options activity indicated a lessening volatility, the Wall Street Journal reported, a sign that perhaps the worst may be over.
• According to a person familiar with the matter, the Financial Times reported that China's Qingdao Haier has approached investment banks to advise it on a bid for General Electric Company's (NYSE: GE) appliance business.

OTHER PAPERS:

• A brief filed by plaintiffs in a shareholder lawsuit against Yahoo! Inc (NASDAQ: YHOO) and its directors claimed that an employee severance plan put in place to protect workers after a merger with Microsoft Corporation (NASDAQ: MSFT) should be repealed immediately. The New York Times reported that the plaintiffs believe the plan could skew the outcome of a proxy battle between Yahoo! and Carl Icahn for control of the company.

When I first saw the reports that Microsoft (NASDAQ: MSFT) was looking into the possibility of a non-acquisition deal with Yahoo (NASDAQ: YHOO), my reaction was "What a rip-off!"

What's currently being discussed would seem to give Microsoft access to the parts of Yahoo that it wants without having to acquire the company. If Yahoo goes through with this, the company would seem to have no bargaining chip left to push for a higher price from Microsoft. As the crude saying goes, why buy the cow when you can get the milk for free.

A source close to Carl Icahn reportedly says that he sees it much the same way. Reuters quotes the source: "Microsoft is trying to get the milk without buying the cow, and if you look at Icahn's history, he has never been used that way. He does not want to see Yahoo pushed into some joint venture with Microsoft and is not going to be used to push Yahoo into it."

If Yahoo thinks some sort of joint venture will appease Icahn, it's got another think coming. But then again, Icahn is famously unpredictable. As Steve Miller wrote about him "In face-to-face meetings he gave everyone whiplash. One moment he'd bellow, 'That's the stupidest goddamn thing I ever heard heard,' and the next he'd put his arm around you."

The Yahoo/Microsoft battle was interesting. The addition of Carl Icahn to the chamber pot could make it classic.

The Associated Press reports that talks between Microsoft Corp. (NASDAQ: MSFT) and Yahoo (NASDAQ: YHOO) may be back on. In a statement Sunday, Microsoft says it is considering a different kind of deal with Yahoo. "Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative."

This news will come as good news to Carl Icahn who launched an effort to oust Yahoo's board. I think he is an aggressive representative of the wave of institutional investors who would like nothing more than to make a quick buck on their Yahoo shares. Those investors were sorely disappointed that Microsoft and Yahoo could not come to terms on a deal a few weeks ago.

However, the current talks seem quite vague at this point. Yet they could be Yahoo's direct response to Icahn who, according to the Wall Street Journal, told Yahoo's board it could quickly quell Icahn's shareholder revolt by renewing negotiations with Microsoft -- but Microsoft warned that it's possible no deal will be struck. So we wait...

Update. The New York Times reports that Microsoft is proposing a search-engine marketing alliance with Yahoo to help Microsoft gain share against Google Inc. (NASDAQ: GOOG). Yahoo could announce a formal agreement on a partnership with Google this week. A Yahoo-Google partnership, which is likely to face antitrust scrutiny, could make Yahoo a less desirable partner or takeover candidate for Microsoft.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Motorola Inc. (NYSE: MOT) shares soared at the open today, but are now trading only slightly higher after the company announced it plans to split itself into two publicly traded companies.

Under the plan, MOT's handset business will become its own entity separate from the company's home and networks business. The move comes after months of pressure from billionaire investor Carl Icahn, who thinks separating the handset business from other operations could help the company strengthen its mobile phone brand and bottom line. Pending regulatory approval, the company will be split in 2009. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MOT.

After hitting a one-year high of $19.68 in October, the stock hit a one-year low of $8.98 last week. MOT opened this morning at $10.30. So far today the stock has hit a low of $9.82 and a high of $10.35. As of 10:00, MOT is trading at $9.81, up just $0.05 (0.5%), indicating that investors aren't going crazy about this announcement. The chart for MOT looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

MAJOR PAPERS:

• The Wall Street Journal reported that private loans under the Federal Family Education Loan, or FEEL, program have begun to give way to the federal direct loan program, as private lenders run into subsidy cuts and problems raising capital. To date about 60 colleges and universities have made the switch.
• Carl Icahn, a 6.3% Motorola Inc (NYSE: MOT) shareholder, has sued the company to get board of director documents, turning away offers of two board seats, the Wall Street Journal reported. Icahn wants information about the company's unprofitable handset business.
• Ford Motor Company (NYSE: F) is expected Wednesday to announce an agreement to sell its Jaguar and Land Rover units to India's Tata Motors Limited (NYSE: TTM) for about $2B, the Financial Times reported.

OTHER PAPERS:

• According to the Business Review, New York State Senator Charles Schumer is planning to 'reveal details' of a conversation he had with the CEO of Advanced Micro Devices Inc (NYSE: AMD) on March 21 about the company's plans to build a $3.2B computer chip plant in Saratoga County.

Billionaire activist investor Carl Icahn says he is suing Motorola (NYSE: MOT) to compel the company to hand over documents related to its mobile device business. He is also, not surprisingly, urging investors to support his slate of nominees for the company's board of directors.

In a letter to shareholders filed with the SEC Icahn wrote that "As we all are painfully aware, over the past 18 months, the market value of Motorola has dropped by over $37 billion. More than $17 per share of Stockholder capital has vanished under the "guidance" and "leadership" of the current Board ... "

To correct the problems at Motorola, Icahn said that two things were necessary: spinning off the mobile device business and giving shareholders a "strong and capable voice in the boardroom." He also included a detailed list of "Empty Promises: Motorola's Record of Failed Leadership." If you're interested in Motorola at all, you absolutely must read this letter.

Icahn's battle for control of the company's board and removal of CEO Ed Zander failed last year, although Zander was subsequently pushed out after more bad results. Now Icahn is raising questions about recently-installed CEO Greg Brown:

And what "qualified" Brown to be the CEO? He certainly - as far as I can ascertain - has no in-depth experience or knowledge concerning the Mobile Devices business, which was and is by far the major problem for Motorola. Hopefully, our litigation with Motorola will soon reveal just how hard our "blue-ribbon board" tried to find an alternative to the "qualified" Mr. Brown.

Classic Icahn. Priceless. Icahn controls 6.4% of the company's stock and, given the continued failure of the company to generate value, his second battle for control of Motorola should draw more support.

As BEA Systems (NASDAQ: BEAS) management attempts to justify its decision not to let shareholders decide the fate of their company with regard to a takeover offer from Oracle (NASDAQ: ORCL), CEO Alfred Chuang has taken an unusual step.

He has given shareholder and vocal opponent of his strategy, Carl Icahn, confidential information that purportedly shows that Oracle's bid "significantly undervalues the company."

No word yet on King Icahn's reaction, but he probably isn't buying it. In an October letter to the company, he wrote that "I view your public declaration of a $21 per share 'take it or leave it' price as a management entrenchment tactic, not a negotiating technique."

He's probably right. Some of the most trenchant analysis of the BEA situation comes from our own Georges Yared, who said this:

BEA Systems (NASDAQ: BEAS) finds itself defending its rejection of Oracle's (NASDAQ: ORCL) takeover offer of $17 per share as the stock plummets -- and with good reason. Take a look at the chart comparing the return BEA Systems has provided for its shareholders, and compare it with the return Carl Icahn's company, Icahn Enterprises (NYSE: IEP) has provided. Note: Icahn Enterprises recently changes its name and ticker from American Real Estate, ticker ACP to IEP. The ticker used in the chart is ACP.

Having looked at the chart, ask yourself: Who was better poised to make a decision about shareholder value? The company's outside shareholders including Mr. Icahn, or an entrenched management team that has simply failed to generate value?