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.