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Yahoo CEO Using Golden Parachutes to Escape Microsoft, Suit Says

Yahoo's CEO is so desperate to block Microsoft Corp.'s $44.6 million merger bid that he is wasting $3 billion on "golden parachute" severance plans for every employee of the Internet services firm, an investor suit in Delaware court charges.

The latest of numerous Delaware Chancery Court shareholder suits over Microsoft's unsolicited bid was filed by two Detroit municipal pension funds that claim Yahoo CEO Jerry Yang is "driven by resentment" to take extreme and irrational measures to avoid a merger.

Normally, golden parachutes - large payments to employees in the event of a change in company ownership - are reserved for top-level executives to guarantee a soft landing if they lose their jobs because of a corporate takeover.

When Yahoo's directors flatly rejected Microsoft's offer even though it represented a 62 percent premium over the current market value, they breached their fiduciary duty to get the best price for the company, according to several complaints filed in Delaware, where Yahoo is incorporated, and California, where its headquarters are.

Yahoo issued a statement saying the $31-per-share offer "substantially undervalues" the company.

Under Delaware law, once a company is up for sale, the directors have a fiduciary duty to actively seek the best value possible for the shareholders, according to the lawsuit.

Yahoo's directors have breached that duty by refusing to negotiate with Microsoft and by failing to conduct a market search for other bidders, the suits say.

In the newest action, filed in the Chancery Court Feb. 21, the General Retirement System of the City of Detroit and the city's Police & Fire Retirement System claim that instead of finding better offers for Yahoo, Yang is trying to make the company too expensive.

For instance, a plan to give every employee a golden parachute will waste up to $3 billion and add about 7 percent to the acquisition cost, the pension funds allege.

"Several members of the board have recognized that CEO Jerry Yang is hurting Yahoo and its shareholders by placing pride over prudence," the plaintiffs say.

Another wasteful tactic is a plan to sell 20 percent of the company to Rubert Murdoch's News Corp. "so that the Yahoo board can thwart Microsoft's efforts without even having to put their tactics to a shareholder vote," the complaint says.

Under Delaware law shareholders generally only get to vote on transactions that sell a majority share of the company.

Because of management's ill-advised response to the Microsoft offer, the company is in an even worse position financially than it was in before the bid, the suit says.

It asks the court to find that the Yahoo officers and directors breached their duty and that they must begin negotiations with Microsoft.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@Thomson.com.

The plaintiffs are represented by Andre Bouchard, David Margules, Joel Friedlander and Evan Williford of Bouchard Margules & Friedlander in Wilmington, Del., and Mark Lebovitch and Brett Middleton of Bernstein Litowitz Berger & Grossman in New York.