For those keeping track at home, Microsoft was offering $31 a share at the time, which valued Yahoo at over $44-billion. Yahoo’s current market capitalization is less than $15-billion, which means almost $30-billion or about 65 per cent of the company’s value has vanished. Obviously, all of that decline can’t be blamed on Jerry, since the global economic meltdown probably had a little to do with it as well. But even before that happened, Yahoo’s stock value had dropped by tens of billions of dollars. About all Jerry and the board could come up with as a strategy was to float a merger deal of some kind with AOL of all places.

Lots of people have risen to Yang’s defence amid the criticisms of the past few months, and the calls for his ouster, but they have likely been motivated more by sympathy — or sheer contrariness — than by any admiration for what he has been able to accomplish at Yahoo, which is virtually nil. Yes, he was the co-founder of the company, and I’m sure he’s a tremendously nice fellow with all sorts of charming personal qualities. That doesn’t mean he’s the right guy to run Yahoo. Steve Ballmer isn’t going to win any charm awards, but he’s arguably done a better job at Microsoft than Yang has done with Yahoo. It’s not a popularity contest.

The biggest problem for the board and for Yahoo now is that Jerry’s departure will make it even more obvious how little strategic direction or bench strength they have at the company, and how rudderless the ship really is. They had better hope that Microsoft isn’t serious when it keeps saying it isn’t interested in a search deal, because that’s about all there is on the table that could make a difference for Yahoo at this point.

As John Paczkowski notes at All Things D, this deal was supposed to generate as much as half a billion dollars worth of additional cash flow in its first year, money Yahoo could definitely use. But more than that, this deal was a way of trying to stand on its own two feet (albeit while leaning on Google for support), and that is now gone. Microsoft, which had its takeover bid for Yahoo derailed by the Google arrangement — among other things — is no doubt doing the math on another bid.

The only problem for Yahoo is that instead of a $45-billion deal at $31 a share, Microsoft is more likely to bid about half that, and that’s if it even makes another bid for Yahoo at all. Nice job, Jerry. How many failed Hail Mary passes can one CEO throw?

Update:

VentureBeat’s Matt Marshall is reporting that an internal Yahoo memo says to expect “a major historical announcement” later today, and the rumour is that Jerry Yang will step down as CEO. Kara Swisher at All Things D says that is dead wrong, and so does the New York Times DealBook blog. VentureBeat has now updated its post and quotes a Yahoo source as saying there is no truth to the rumours.

Looks like Carl Icahn has managed to strike a deal with Yahoo to avoid an all-out proxy battle over board members. According to a news release this morning, the two sides have agreed to a settlement that involves expanding the Yahoo board so that two Icahn representatives and Icahn himself can have seats. This effectively negates the need for the settlement proposed by Eric Jackson, which is described below — although as Charles Cooper at CNET notes, this has given the fox a seat on the board of the henhouse. So while the current battle may have ended, the war over Yahoo’s future continues.

Original post:

Before activist shareholder and billionaire takeover artist Carl Icahn got involved with Yahoo, and not long after Microsoft started making overtures towards the company behind the scenes, a disgruntled shareholder named Eric Jackson was already trying to marshal support for some big changes at the Internet company, including the departure of CEO Terry Semel, who eventually wound up leaving. Using his blog, YouTube videos and an aggressive lobbying effort aimed at institutional shareholders, Jackson managed to get a substantial amount of support and press for his campaign. Whether his efforts helped to force Semel out or not is open to debate, but it certainly helped crystallize some of the dissatisfaction surrounding the company.

Eric, who formed an activist investment fund called Ironfire Capital as a result of his efforts, is still pushing for change at Yahoo, and this morning he launched a forum on Agoracom.com, a small-cap investor-information portal based in Toronto and founded by George Tsiolis. Jackson wants an alternate slate of Yahoo directors, but not the slate suggested by Icahn; instead, he is proposing a middle-of-the-road solution, in which several Yahoo board members get to keep their spots, but others are removed to make way for some of Icahn’s substitutes (but not Mark Cuban; sorry Mark). Shareholders are encouraged to mark their voting cards as described in a statement by Eric and posted on Agoracom.

Jackson says that some investors are uncomfortable with Icahn’s proposed slate because it would remove every Yahoo board member, raising concerns about continuity and the possible triggering of a poison-pill style compensation package. The activist shareholder says that his proposal “will maximize the change so desperately needed” at the Internet company without any of those drawbacks. According to a news release issued this morning, Eric says that his “Plan B” group of Yahoo shareholders includes 150 members, who own 3.2 million shares in Yahoo! worth over $70 million. Yahoo’s annual meeting is August 1.

In a few hours, the story … was viewed over 200,000 times and attracted over 350 comments. Now that’s a lot of traffic — but more importantly, a gigantic amount of engagement displayed by Yahoo visitors. The traffic sent our way by Yahoo was many times the traffic we get from, say, Digg or StumbleUpon.

As Om notes, it’s not so much the sheer volume of traffic that is impressive, but the engagement of the audience. Even during the biggest Digg storm or Stumbleupon flood I’ve ever experienced, I’ve never gotten more than a handful of comments. As beaten-down as it is, Yahoo still gets a ton of traffic — but Om is right that it needs to find better ways of taking advantage of and leveraging that traffic, instead of just trying to go head-to-head with Google. Should it sell off its search arm to Microsoft? Perhaps. At least then it could concentrate on what makes it different from Google, instead of trying to duplicate it.

The latest twist is that Microsoft and Carl are apparently still working on a takeover deal for the company. Icahn has sent a letter to Yahoo — and Microsoft has released its own similar statement — saying the two would be happy to discuss a takeover of some kind, but only if Yahoo’s current board gets the axe — the implication being that either the company gets rid of them, or Carl’s alternate slate is voted in at Yahoo’s annual meeting. In both statements, the potential for a full takeover is outlined. Microsoft’s release says that following a replacement of the board, it would

“be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the ‘Search’ function with large financial guarantees or, in the alternative, purchasing the whole company.”

This is the first official recognition (to my knowledge) that Microsoft would still be interested in purchasing the entire company, after repeated protests a month ago that it no longer had any interest in doing so. Has Yahoo’s ever-declining share price made it more attractive again, or was the Yahoo board really that much of a barrier to doing a deal? Perhaps a little of column A and a little of column B. In any case, a takeover appears to be a possibility again — and shareholders are growing hopeful again, to judge by the uplift in Yahoo’s stock. Will that be enough to force the board’s hand, or to push shareholders to do so at Yahoo’s August meeting? Some might be glad just to have the ordeal over with.

Meanwhile, Yahoo is apparently talking with AOL again about some kind of merger in an attempt to prove that it can make it without Microsoft’s help. Call it “Merger of the Living Dead.” As my friend Howard Lindzon describes it, this is like “watching three horse and buggy carriers get together and worry about trains and automobiles by merging and saving on hay.”

Update: In a statement in response to Icahn’s letter, the Yahoo board says it would be happy to talk about a deal if either Microsoft or Carl want to make one — the implication being that all this talk about the board is just a side-issue designed to push Yahoo’s share price down even further and create a more inexpensive deal for Microsoft. Meanwhile, Kara Swisher reports that a major Yahoo investor has told Jerry Yang that he’s ready to vote for Microsoft in August.