Yahoo Sued for Spurning Microsoft

tuxgeek writes "In the continuing saga of Yahoo resisting a Microsoft buy out, Yahoo is now being sued by its shareholders. 'Two Detroit pension funds have sued Yahoo Inc. and its board of directors, saying they breached their duties to shareholders in trying to thwart a takeover by Microsoft Corp. The lawsuit was filed in Delaware Chancery Court on Thursday by lawyers representing Detroit's police and fire retirement system and general retirement system, as well as 'all other similarly situated public shareholders.'"

Comments

this might be interesting

[Protonk]

IANAL.

My take is that shareholder lawsuits are never a given in this country. There is a good possiblity that Yahoo will just show in court that their managerial view of the long view showed greater long term shareholder value in avoiding the merger. there is a good possibility that the suit might be dismissed on face. However, this doesn't always happen. If these investors are large enough, or find other plaintiffs who are, the mere public pressure of the suit could pressure the Yahoo board to do a few possible things:

1. Make a deal with microsoft to put it up to a vote of shareholders.

2. Just go ahead with the deal anyways.

I can't remember the last time a lawsuit like this went through off the top of my head. But I know that the record on them is not completely one-sided. I'll do some digging and be back

Re:this might be interesting

[OakLEE]

Regular Business Judgment Rule (BJR) does not apply in hostile takeovers. In these instances the Enhanced Scrutiny Standard or Unocal Test applies.

Under this standard the Corporation's Board of directors is presumed self-interested, and must show (1) reasonable grounds for believing the taker over is dangerous to corporate policy and effectiveness, and (2) that their defense against the takeover is reasonable in proportion to the threat posed. Only if these two things are shown will the BJR be applied.

While it is definitely harder to satisfy than the BJR, I still think Yahoo can make some credible arguments to satisfy the Enhanced Scrutiny Standard, especially with respect to how Yahoo would fit within the greater Microsoft corporate structure.

However, what's more interesting is whether Yahoo's comments about wanting a $40 per share price constitutes an attempt by the board to actively sell the corporation. If the that's the case, the Board has effectivley put itself in an situation where it has a duty to get the best price possible for its shareholders and act in good faith with respect to obtaining that price. This the so called Revlon Rule.

Given the available information, it's arguably clear that $40 per share is just a pipe dream, especially since Microsoft is the only bidder. Yahoo's Board, by rejecting Microsoft's offer and countering with an unreasonable offer is arguably acting in bad faith, especially if the $40 offer is just a ploy and not a real negotiating strategy. Given that Yahoo is also attempting to entrench their employees, their overall course of conduct does not appear to be proper and in the interest of maximizing shareholder value for a company that is essentially putting itself up for auction.

In sum, Yahoo's board is going to argue for enhanced scrutiny to apply, while the plaintiffs will be arguing for Revlon to apply, and both probably have good arguments as to the matter. It'll be interesting to see how the court draws the line on this one.

Re:Beholden to short term investors

[LiENUS]

It's bad that they're doing this. I would suspect that Yahoo! has a good reason for refusing the takeover attempt (possibly trying to prop the companies financials up to leverage a higher bidfrom Microsoft). In suing the board members they stand to earn what they would have earned should Microsoft have succeeded in the bid. However if they laid and waited patiently there would be a good chance of Microsoft offering a higher bid. Theres also the possibility of them getting no future bids from Microsoft at all, however I believe the potential for rewards far outweigh the risks. Microsoft wants Yahoo! for a reason and it's not just that Yahoo! is a search company. It's the whole package the search, the messenger and

Re:Beholden to short term investors

[Kohath]

No. Shareholder lawsuits are not about investors. Shareholder lawsuits are about lawyers.

Shareholder lawsuits are guaranteed to occur any time a company does (or declines to do) any significant action that might affect the price of the stock. They are not an event. They are not newsworthy except as an indication of our broken legal system.

Re:Hardly just a childish rivalry

[OakLEE]

Yahoo's brand name is probably second only to Google on the internet, and if they would properly make use of it, they could probably top Microsoft in market cap. However, that said, Jerry Yang, and the last two CEOs have done a shit poor job of running the company, and Yahoo will not realize its full potential as long as Yang and the rest of the old Yahoo vanguard control the board. The company gets many more page views than Google, and has a larger registered user base, yet Google has been much more successful in on both the technical and business fronts.

Yahoo, as evidenced by the chronic underperformance (they can't even consistently meet their OWN guidance, let alone Wall Street's), is not a well run company and certainly is not living up to its potential. While I'm not convinced Microsoft can fix what's wrong with Yahoo and certainly not convinced it wants to buy Yahoo for only that purpose, I am convinced that the board and management have no clue what they are doing, and clearly at the very least is ambivalent toward their shareholders. I'd go so far as to venture that Yahoo's board has contempt for them. If Yahoo does remain independent, it wouldn't surprise me to see a revolt against the board at the next shareholders meeting.