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Yahoo Execs Spurned Microsoft's Bid, Unsealed Suit Says

Yahoo.com officials "gave the back of their hand" to Microsoft's $40-a-share buyout bid last year, and the Internet search company's stock is now worth a little more than half that value, investors say in a suit recently unsealed in Delaware state court.

The combined shareholder suits in the Delaware Chancery Court allege that instead of using the Microsoft offer to overtake top search engine firm Google, Yahoo CEO Jerry Yang made the company too expensive with "tin parachutes" that encouraged executives and rank-and-file employees to take a big stock-option severance payout and leave if Microsoft took over.

In a press statement Yahoo said, "We adopted this [severance] plan to preserve the company's most valuable asset - its employees - at an unprecedented time in the company's history."

Shareholders filed suits in February accusing Yahoo officials of breaching their fiduciary duty to get the best value for investors' stock, but all the documents related to the now-consolidated actions had been unavailable to the public until Chancellor William Chandler ruled that there was no reason to keep the suit sealed.

Yahoo had argued that dissident shareholders, led by takeover specialist Carl Icahn, would misuse discovery from the suit in a campaign to wrest control from the incumbent management at an annual meeting in July.

However, in a brief opinion Chancellor Chandler said if Yahoo is afraid the materials will be quoted out of context to mislead investors, the best remedy is to make all the facts available.

The plaintiffs say Yang's ego spurred him to try to keep control of the company by erecting numerous defensive barriers that made it too expensive to acquire.

They say the severance plan alone would have added $2.4 billion to the acquisition cost.

Yahoo also made several commitments to other companies that would have been time-consuming and costly to unravel, the plaintiffs say.

According to court filings, Microsoft made a $40-per-share offer last year, and Yang refused.

Microsoft then bid $31 a share in January, upped it to $33 and finally withdrew its offer last month, the court records say.

Yahoo's stock is now trading at around $26 a share.

The shareholders ask the court to force the Yahoo directors to rescind all the defensive measures they adopted to make the company unpalatable to a prospective acquirer and to hold the directors and officers personally liable for the money investors lost when the company's stock value dropped.

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, Jonathan Harris and Bret Middleton of Bernstein Litowitz Berger & Grossmann in New York.Yahoo, which is incorporated in Delaware, is represented by Edward Welch and Edward Micheletti of Skadden, Arps, Slate, Meagher & Flom in Wilmington and John Speigel and Robert Dell Angelo of Munger, Tolles & Olson in Los Angeles.The individual defendants are represented by David McBride, Bruce Silverstein and Dawn Jones of Young Conaway Stargatt & Taylor in Wilmington.