Shareholders blast Yahoo over Microsoft bid
In a filing with the Securities and Exchange Commission yesterday, Yahoo said that seven shareholder groups have filed lawsuits against the company's board of directors since Microsoft announced its unsolicited bid to take over the company.
The class action lawsuits charge that Yahoo's board has breached its fiduciary duty to the shareholders in its response to Microsoft's offer of $31 per share. The lawsuits are a sign of growing pressure on the company to come forward with a plan to restore value to the slumping Internet giant.
On Feb. 11, Yahoo's board rejected the offer, claiming that it "substantially undervalues" the company's worth.
Since then, Yahoo has been in quiet talks with other companies, including Google and News Corp., exploring alternatives to an outright buyout. So far this effort has come up empty.
In all of its public comments, Yahoo has reiterated that it continues to explore all strategic options.
In the SEC filing, Yahoo reported that Microsoft's proposal had become a "significant distraction" to managers and employees. "Microsoft's unsolicited acquisition proposal has also created uncertainty for our employees, and this uncertainty may adversely affect our ability to retain key employees and hire new talent," Yahoo said.
Yahoo also expressed concerns about the potential negative impact the bid could have on relationships with advertisers, publishers and business partners.
Four of the lawsuits were filed in California Superior Court, and the other three were filed in the Court of Chancery in Delaware.
In two of the California cases, the shareholders charge Yahoo's board with failing to negotiate with Microsoft and other potential suitors. In the other two cases, the plaintiffs assert that Microsoft's bid was unfair, and that Yahoo's board breached it fiduciary duty by favoring it, presumably at the exclusion of potential alternative bidders.
Microsoft's bid represented a 62 percent premium over Yahoo's share price at the time it was announced.
In the Delaware cases, the plaintiffs assert that Yahoo's board neglected its shareholder obligations in flatly rejecting the offer without first determining whether Microsoft would raise its bid.
They also accuse Yahoo's board members of attempting to "entrench themselves," and one of the lawsuits takes issue with various anti-takeover measures the company has adopted, including the generous employee severance plan the board approved on Feb. 12.
The Delaware case echoes the view held by many observers that the golden parachute provisions signaled that Yahoo was digging in its heals against any move that Microsoft might make to take its bid hostile.
The severance plans, which apply only in the event that control of the company changes hands, would tack on a considerable sum to the total cost of acquisition.
Meantime, Microsoft has offered no indication that it is willing to increase its bid, instead reiterating that the initial offer was fair and quietly preparing for a proxy fight to replace Yahoo's board.
The odds of Microsoft successfully replacing Yahoo CEO Jerry Yang and the other nine board members are long. Such a move could kindle sufficient opposition, however, to Yahoo's current holdout to force the board to come to the bargaining table in a weakened position.
Most analysts agree that Microsoft will ultimately end up acquiring Yahoo for an amount greater than the initial offer. But the added leverage it would gain from a proxy fight could bring the final transaction price down by several billion dollars.
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