A string of Yahoo sales, engineering and product executives took the stage on Wednesday in the company's first full-day briefing with analysts since May 2006, all with a mantra that came down from on high: "Today is the beginning of a journey back to respect," said CEO Carol Bartz.

With page views increasing, Carl Icahn having drawn in his horns, and the company extending a deadline for finalizing a search agreement with Microsoft, the time was right for a love-in.

Finance Chief Tim Morse said Yahoo expects to achieve operating margins between 15 percent and 20 percent by 2012. After the third quarter's "pathetic" 6 percent, shareholders would certainly consider that a more respectful performance.

Another way to show their respect would have been to give specific details on the engineering involved in the promised prestige. Executives said Yahoo would achieve the new margin targets by accelerating its revenue in the next few years, but demurred from providing a specific revenue growth target.

The company said it would invest in editorial staff to produce more original features, and tweak its online products to keep users on the site longer and boost advertising revenue.

Hiring more staff and investing in ad search wizardry will certainly add to costs, so the need for a little more Internet alchemy could require a leap of faith to engineer the recovery in esteem Yahoo hopes to achieve.

The reaction to Yahoo’s earnings in the stock market this morning was relatively positive. Shares rose 2 percent right off the bat, but we’ll see what happens as the day rolls on. Meanwhile, here are what some Wall Streeters had to say about the quarter in various research reports.

Signal Hill Capital Group: While all of Yahoo’s business segments declined, display was by far the hardest hit.  Display ad sales fell 27% sequentially and 13% YoY to $371 million, as premium inventory is either not selling out, or is selling at very depressed CPM’s.  Yahoo’s search business declined less, but is hardly a bright spot.  Search revenue dropped 9% sequentially, compared with Google’s 4% sequential decline.

Collins Stewart: Given how bad display and search ad trends were during the March quarter, we believe the earning was not bad. CEO Bartz is clearly bringing fresh perspective, sound cost management, and portfolio optimization approach, which we believe will start yielding positive results. We continue to believe that Microsoft-Yahoo search deal is very likely and silence by CEO Bartz during the earnings call suggested to us that something is brewing.

Jefferies & Co: While severe macro headwinds yielded tepid revenues, management has moved aggressively to protect margins and realign costs. We are encouraged by the new CEO’s efforts to make Yahoo! more fit, which would position it better to compete long-term and also give it more
leverage in any negotiations with Microsoft.

Bernstein: Possibly one of Yahoo!’s stranger earnings calls seemed to excite the after-market – the stock was up almost 5% in after-hours trading. The company’s 1Q:09 operating performance was poor - revenues of $1.58 billion were down -13% YoY, technically lower than consensus but thanks to cost and expense  reductions in the quarter earnings were in line with analyst’s expectations of $0.08/share. The call did little to shed any light on  management’s strategy other than to cut headcount by 5%, outsource some under-performing businesses and generally wait until the economy improves.

Barclays Capital: Yahoo becoming more of a margin expansion story, but core advertising pressures remain & we think they are more than just macro related. We think shares are fairly valued at current 6x EBITDA, or $15. Margin expansion should provide some support and potential for a search deal or more remains, but would like to see better entry point and/or more fundamental improvement in search & display before becoming more positive on YHOO shares.

Keep an eye on:

• News Corp’s stake in German pay-TV broadcaster Premiere will swell to 30.5 percent as the media conglomerate agreed to take up almost a third of new shares issued in Premiere’s second capital hike (Reuters)

• Carl Icahn has extended a tender for $316 million in Lions Gate Entertainment notes as the studio moves aggressively to thwart his overtures and talks with potential partners for its TV Guide cable channel, sources familiar with the discussions said. (Reuters)

• Global recorded music sales fell by more than 8 percent in 2008 to $18.42 billion led by a sharp drop-off in sales in the United States, according to the world music trade body (Reuters)

(Photo: Reuters)

Not so fast Mr. Icahn. Lions Gate Entertainment is trying to defend itself against famed financier Carl Icahn by hiring an advisory team, including investment bank Morgan Stanley and the law firm Wachtell, Lipton, Rosen and Katz.

It also is in talks to offer a board seat to Mark Rachesky of MHR Fund Management, the studio’s largest shareholder.

Icahn controls 14.5 percent of Lions Gate’s shares and wants to increase his sway, seemingly because he’s frustrated with things like costs and the company’s decision to buy the TV Guide cable channel.

All this has set up a potential proxy fight – perhaps a nasty one.

Who is the smart money on? Hard to tell. Icahn is an old hand at these things, but given Lions Gate’s moves on Tuesday — it also hired Joele Frank Wilkinson Brimmer Katcher, a public relations firm that built a reputation advising companies involved in hostile deals – it looks like they aren’t about to back down.

A showdown could be coming.

Keep an eye on:

• Discovery Communications  has sued Amazon.com, accusing the online retailer’s Kindle of infringing its patent on electronic book technology (Reuters)
• Hollywood labor leaders are considering sending out strike-authorization ballots unless negotiations with advertisers on a new commercials contract improve quickly (The Hollywood Reporter)

(Photo: Reuters)

Guess where the paparazzi are training their lenses these days? For those of you who missed it, The New York Times writes that gossip rags have all but abandoned Britney Spears for the thrill of capturing corporate excesses on camera. From the paper:

The tabloid media, of course, have always peered into the excesses of the rich and famous with a mix of puritan disapproval and voyeurism. But these outlets and other news organizations are now recording troubling uses of taxpayer money at country clubs, private airports and glamorous retreats and, in so doing, explicitly tapping into a fierce populist anger at corporate America, and even pressuring Congress to hold companies accountable.

Populist indignation apart, perhaps people also feel a sense of glee when watching or reading about the severe scaling back of corporate budgets that once supported lavish lifestyles. Gawker may have captured the glee best in this biting account of The Wall Street Journal story on Goldman Sachs executives being asked to stay at Embassy Suites rather than the Ritz.

Reporters are often sent to capture nuggets of corporate excess, the more outrageous the better. An affinity for $40 crab legs? Flying to DC in private jets to ask for bailout money? Poolside sales conferences with six-figure tabs? The media loves writing about this stuff almost as much as people enjoy reading it. So if you’ve got any tips, let us know.

Keep an eye on:

• New AOL CEO Tim Armstrong sees a lot of options for AOL’s future. (All Things Digital)
• Alibaba seeks partnerships with U.S. companies. (Reuters)
• Carl Icahn says he doesn’t intend to push for a sale of Lions Gate. (Reuters)

(Photo: Reuters)

Last week, it had seemed like Lions Gate and Carl Icahn were heading to an amicable settlement (in other words, Icahn was close to getting his way because the independent film and television studio was leaning toward giving him a board seat or two).

But things obviously soured, because talks broke down, raising the specter of a proxy fight for control of Lions Gate.

From Icahn: “Discussions have been terminated because agreement could not be reached concerning certain aspects of the standstill agreement that Lions Gate demanded as a condition of installing those board members.:

From Lions Gate CEO Jon Feltheimer and Vice Chairman Michael Burns: “Over the past three weeks, our board of directors has been in discussions with Mr Icahn to consider how we could accommodate some of his requests, including the possible appointment of his designees to the board of directors. However, the board ultimately concluded that it could not meet his requests…”

It seems Icahn wanted too much.

Last year, when the billionaire investor wedged himself in between Yahoo and Microsoft and threatened a proxy fight against Yahoo, the Internet company caved and gave him board seats. We haven’t heard a peep out of Icahn since on that front.

But clearly, things are going to be different for Lions Gate. There have been press reports lately that the corporate raider had begun buying up MGM debt in hopes of forcing a merger between rivals MGM and Lions Gate. That kind of back-door entry didn’t work for EchoStar’s Charlie Ergen in his pursuit of Sirius XM, because Liberty Media’s John Malone rode in on his steed at the nick of time.

If a similar scenario unfolded at Lions Gate, who’d be the white knight?

Keep an eye on:

• PR firms grow amid marketing gloom. (Financial Times)
• No one knows which will be the first big city without a large newspaper, but there are candidates across the U.S. (The New York Times)
• AOL closes China R&D unit, sheds 56 jobs. (Reuters)

(Photo: Reuters)

Bruce Wasserstein, chief executive of private equity firm Lazard, joined Blackstone co-founder Steve Schwarzman at a breakfast sponsored by Fortune magazine this morning to share their collective wisdom regarding the financial crisis. (For more on the breakfast, see our DealZone blog).

At the end of the Q&A session, he got one of those out-of-the-blue questions from editor and moderator Andy Serwer: If he could do it all over again, would he still have hooked up with Carl Icahn on the activist investor’s quest to shake up Time Warner Inc?

It sounded like he would. He told guests at the breakfast that he was proud of the report that he and Icahn prepared about the state of the media conglomerate, which contained a bunch of recommendations for how it could improve — including mounting a bigger push into the digital age.

Then there was the money. “Both Carl and we did well financially from this.” And the investors? “Our view was to be helpful to the shareholders of Time Warner.” (Icahn’s strategy to break up the company failed, but he did reach an agreement in early 2006 with former Chief Executive Richard Parsons to add independent directors to the board and to get the company to buy back more stock)

One problem: It was a pain to convince a company seemingly stuck to its accustomed ways, Wasserstein said: “You face such entrenched points of view that it’s difficult to be successful unless you have really long-term resolve.”

So, would he do it all over again? “Probably not is the honest answer.”

I asked him afterward what made him decide that. Explaining their plans was the hard part, he said. I said, “to whom? The company? Or reporters? People like me?”

“Yes,” he replied.

Hopefully it was worth the effort — financially speaking.

(Photo: Reuters)

The turmoil of Wall Street is keep Madison Avenue’s creative types on their toes.

As the New York Times points out, “The biggest challenge, executives say, is trying to keep up with the stunning economic and financial events and the resulting mood swings, as evidenced by the roller-coaster ride from the despair of Wednesday to the euphoria of Friday. All that makes it difficult to determine how to best persuade shoppers to open their wallets.”

The newspaper reports that New York Life, an insurance company, last week asked their agency, Taxi, to create a new round of ads to play up the company’s reliability in the aftermath of the AIG meltdown.

Similarly, the Wall Street Journal says, Oppenheimer Funds has scrambled to change up some of its advertising plans, pushing back two spots.

Those two ads are “more about taking proactive steps to adjust a portfolio and make an investment decision, and I think at this point we need to wait a few weeks,” says Bruce Dunbar, director of corporate communications at Oppenheimer. Right now, Mr. Dunbar says, “people will be thinking about how they are going to readjust in the short term, versus thinking about long term.”

Paul Jensen, general manager of Weber Shandwick’s New York office, tells AdAge that times call for the financial services industry to get out and restore confidence among clients, consumers, employees, etc.

“Now’s not the time to hide under a rock if the market has questions about your financial stability,” said Mr. Jensen.

Of course, given how fast the market is swinging these days, Madison Avenue probably has some more scrambling ahead.
Keep an eye on:

• “Mad Men” won the Emmy for outstanding drama series at Sunday’s 60th annual Emmy Awards (LA Times)
• First-rounds bids for 50 CBS Corp radio stations are due today — testing the health of the market (NY Post)
• Carl Icahn makes his Yahoo board meeting debut Tuesday morning, and its still pushing for them to do something with Microsoft (Silicon Alley Insider)

(Photo: Reuters)

The following is a timeline of key events leading up to Yahoo’s Aug. 1 annual meeting.

2006 January - Yahoo Inc begins to report a string of weak quarterly results, reflecting competitive missteps by the company, market share gains by rival Google Inc, changes in the online advertising landscape and weakening spending in some ad segments.

2006 - Microsoft Corp and Yahoo begin preliminary talks on various partnerships, including a merger.

2007 February - Yahoo, under the leadership of previous Chief Executive Terry Semel, tells Microsoft it is not the right time to discuss a takeover, as the Yahoo board sees great potential in its new advertising technology and by making internal organizational changes.

2007 June 12 - A strong minority of Yahoo shareholders challenges the company’s direction, as CEO Semel comes under fire. Nearly a third of votes cast at the company’s annual shareholders’ meeting oppose some of Yahoo’s directors.

2007 June 18 - Yahoo co-founder Jerry Yang takes over as chief executive as Semel steps aside. Semel remains Yahoo chairman.

2008
Jan. 31 - Microsoft CEO Steve Ballmer makes a $44.6 billion, $31-per-share, cash-and-stock takeover offer to Yahoo’s board. Semel resigns as chairman and is replaced by Roy Bostock.

Feb. 1 - Microsoft makes the offer public. Its shares fall 6.6 percent to $30.45; Yahoo shares rise 48 percent to $28.38.

Feb. 11 - Yahoo rejects the Microsoft offer as too low.

Mid-February - Yahoo begins talks with Time Warner Inc on a deal to combine the media conglomerate’s AOL unit with Yahoo in exchange for Time Warner taking a stake in the merged company. MySpace owner News Corp and Yahoo also discuss a tie-up.

March 18 - Yahoo releases financial forecasts until 2010, in an effort to prove it is worth more than Microsoft bid.

March 28 - One of seven face-to-face meetings takes place between the “senior-most” executives of Microsoft and Yahoo to discuss the bid. Yahoo asks how Microsoft would handle regulatory issues, including antitrust concerns, in a merger.

April 4-7 - Microsoft reevaluates its bid for Yahoo because the Internet company may have lost value since the offer was first made. Microsoft sets a three-week deadline for Yahoo to reach a deal or possibly face a proxy fight. Yahoo again rejects Microsoft’s bid.

April 9 - Yahoo says it will test Google search ads on its site, which could be more lucrative than selling its own search ads. Talks between Yahoo and Time Warner/AOL heat up.

April 15 - At another meeting between between Yahoo and Microsoft executives and their financial advisers, Yahoo asks about Microsoft’s integration plans and Yahoo raises a list of “key non-price deal terms” it believes are critical.

May 3 - After several earlier meetings, Yang meets Ballmer in Seattle. Microsoft verbally raises its offer to $33/share, or $47.5 billion, from its original $31/share bid. Yahoo wants $37/share, or about $5 billion more. Late in the day, Ballmer calls off the talks.

May 15 - Carl Icahn proposes a full dissident board slate for election at Yahoo’s annual shareholder meeting in July. Icahn says he now holds a 4.3 percent stake in Yahoo, including 9.9 million shares and 49 million call options. Yahoo Chairman Bostock replies to Icahn that “none of the alternatives we are considering would preclude us from entering into a transaction with Microsoft or any other party.”

May 18 - Microsoft says it has raised with Yahoo an “alternative” deal that would not involve the software maker buying all of the web company but says it could reconsider pursuing a full acquisition. Microsoft proposed buying Yahoo’s search business and as part of the deal Microsoft would buy a stake in what remains of the company.

June 6 - Icahn says Yahoo should offer to sell itself to Microsoft of $34.375 a share. Throughout June, the two sides exchange a series of letters in an acrimonious war of words.

June 12 - Yahoo announces search advertising deal with Google for up to 10 years, and says talks with Microsoft have ended. U.S. lawmakers promise to scrutinize the deal on antitrust concerns. The companies say they will wait up to three-and-a-half months to put the deal into effect.

June 13 - Microsoft says it had offered to pay $8 billion, or $35 a share, for a 16 percent equity stake in Yahoo, and $1 billion in up-front payments to acquire Yahoo’s search advertising assets.

June 26 - Icahn says in a proxy filing that if his slate is elected, it will seek to hire a “talented and experienced CEO” to replace Yang, eliminate a severance plan, and sell Yahoo to Microsoft for at least $33 a share.

July 7 - Microsoft says it is interested in discussing a major transaction with Yahoo, such as the purchase of all or part of the company, only if Yahoo elects a new board. Microsoft says it has concluded that it cannot reach an agreement with Yahoo’s current management.

July 21 - Yahoo reaches settlement with Icahn that will put the billionaire activist investor and two other nominees on an expanded 11-member board in August, defusing a proxy battle showdown and making an immediate deal with Microsoft less likely.

July 22 - Yahoo’s second-quarter net profit fell 19 percent but investors took heart that it did not change its outlook despite a weakening U.S. economy and the distraction of Microsoft’s failed takeover bid.

Aug. 1 - Yahoo’s annual shareholder meeting.

Sources: Statements from Microsoft, Yahoo, Google and Icahn; Reuters stories and data.

Photos: Reuters, Yahoo and Microsoft company materials, Google Maps.

Compiled by Eric Auchard, Peter Henderson and Tiffany Wu.

As volte faces go, the Yahoo-Carl Icahn slugfest-turned-lovefest is a definite keeper for some future annal of corporate history. Until last week, Yahoo couldn’t slam Icahn enough, mocking the activist investor’s knowledge of technology, calling his agenda risky, and pointing to his failure to articulate clear alternatives to a Microsoft deal.

But since they made nice on Monday, rest assured we’re going to hear nothing but a din of welcome notes from Yahoo, as they sell to shareholders the idea that Icahn and his two designees are good for the board.

Yahoo Chairman Roy Bostock set the sweet, full-of-possibility tone about Icahn on Monday, and Yahoo President Sue Decker picked up where he left off in a CNBC interview today:

I have not met Carl. I think you really have to distinguish what happens in a PR war and proxy contest from reality. I’m totally looking forward to meeting him. I’d love for him to learn about our business and I’d love to get his advice. So there are absolutely no hard feelings of any sort. I think the best thing I can say is that we’re moving forward and we’ll have the distractions behind us, and I want that for our employees and I want that for our company.

Yahoo shareholders may buy into the company’s new attitude and vote accordingly at next Friday’s annual shareholder meeting. But proxy advisory firm Glass Lewis, which recommended that shareholders vote against three directors, did issue a word of caution about Icahn: “Shareholders should monitor Mr. Icahn’s ability to devote sufficient time and attention to the company.”

And The Wall Street Journal too wondered, in a recent story, if Yahoo might come to regret its move.

(Photo: Reuters)

Is Yahoo letting the fox in the hen house or did activist investor Carl Icahn settle after eyeing weakness in his campaign?

Whatever the case, Yahoo’s settlement with Icahn, who had planned to run a rival board slate but now gets three board seats including himself and possibly former AOL Chief Jon Miller, averts what was expected to be a bloody battle on Aug. 1.

Miller, who was pushed out of the Time Warner division, was responsible for turning the subscriber-losing AOL into an Internet company after dismantling its walled garden.

Left unanswered: What will Microsoft say later today? Did Icahn get assurances from the software giant that it would be willing to negotiate any deal with Yahoo in the new board configuration?

(Reuters )

Keep an eye on:

• Macrumors.com founder Dr. Arnold Kim quits medical practice to blog full time. (NYTimes)
• Facebook to get redesign to give users more control. (Reuters)
• Batman smashes Spider-Man’s weekend box office record. (Reuters)