Shareholders sued after ex-Chief Executive Officer Jerry Yang rejected a bid by the world’s largest software company. Microsoft dropped a final offer of as much as $33 a share, or $47.5 billion, in June.
The settlement amounted to “an extraordinary victory” for investors seeking to remove stumbling blocks to an acquisition, said Joel Friedlander, a lawyer for two Detroit pension funds that sued over Yahoo’s handling of the Microsoft offers.
“We are very pleased that the settlement was approved because we believe it is in the best interests of the company and our shareholders,” Kim Rubey, a Yahoo spokeswoman, said in an e-mailed statement.
Sunnyvale, California-based Yahoo rose 52 cents, or 4.2 percent, to $13.05 in Nasdaq Stock Market trading.
Search Alliance Eyed
Yahoo executives said last month they are open to an Internet-search alliance with Microsoft to compete with industry leader Google Inc. Microsoft CEO Steve Ballmer signaled Feb. 24 he’d be willing to work with Carol Bartz, Yahoo’s new CEO, to reach an agreement.
Ballmer and Bartz are under pressure to shore up their Internet search engines and online advertising businesses, which combined generated less than half of Google’s revenue in the fourth quarter.
Ballmer has said for the past several months and repeated as recently as last week that he’s no longer interested in purchasing all of Yahoo. Microsoft is interested in some kind of Internet search agreement with Yahoo, he said.
Shareholders who expect today’s developments to alter Ballmer’s thinking will be disappointed, said Brent Williams, an analyst with Benchmark Co. in New York, who rates Microsoft shares “hold.”
‘Minor Issue’
“I can’t imagine this would change their mind,” he said. This doesn’t even come close to fixing the big issues Microsoft has with buying Yahoo. This has always been a minor issue.”
The day after Ballmer’s most recent comment, Yahoo Chief Financial Officer Blake Jorgenson said his company is open to a search deal. Yahoo has since announced Jorgenson will leave the company.
Google controls the Internet-search market in the U.S. with 63 percent of queries, according to ComScore Inc. of Reston, Virginia. Yahoo’s profit has dropped in 10 of the past 11 quarters.
The Detroit pension funds argued in the Delaware suits that Yang used Yahoo’s severance plan to thwart Microsoft by giving employees incentives to quit rather than work for a buyer.
The plan, approved by Yahoo’s board in the wake of Microsoft’s bid, served as a “quasi-poison pill,” investor advisory firm Glass Lewis Inc. said. A poison pill is a type of corporate-takeover defense.
The severance plan required that workers be paid if their jobs were eliminated or altered after a change in control of Yahoo. The company said the policy was aimed at retaining employees. Investors complained that it made Yahoo more expensive to acquire.
$1 Billion Severance
At a hearing in Georgetown, Delaware, today, Friedlander told Chandler that the plan would have forced Yahoo to pay as much as $1 billion in severance if Microsoft’s bid had been accepted.
Friedlander also noted that Microsoft officials saw Yahoo’s revised severance plan as creating “bad retention,” according to court papers unsealed in the case.
“The plan was an attempt to gum up an acquisition by Microsoft,” he said. The accord “makes a search-engine deal more likely.”
Under the settlement, Yahoo will alter the plan to allow investors to launch proxy fights without triggering severance payments to employees, according to court papers. It also changed the terms of the plan to make it harder for workers to claim severance benefits if the company receives an offer.
Edward Welch, a lawyer representing Yahoo in the case, told Chandler the company agreed to the settlement so it could “move forward and run its business.”
While he said he’d approve the settlement today, Chandler said he’d rule later on Friedlander’s request for $12 million in legal fees and expenses in the case.
The case is Police and Fire Retirement System of the City of Detroit v. Yahoo, CA3561, Delaware Chancery Court (Georgetown).
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