Yahoo's 'Poison Pill' Against MSFT Takeover Deemed 'Nuts'

Yahoo’s (YHOO) poison pill – adopted by the company to thwart a Microsoft (MSFT) takeover – was deemed “nuts” by outside consulting firm Compensia.

That nugget was the big takeaway from an unsealed complaint [PDF of suit] by Bernstein Litowitz Berger & Grossmann, a Michigan law firm suing Yahoo on behalf of shareholders for failing to consummate a merger with Microsoft.

Yahoo had fought to keep the complaint confidential but to no avail. As a result, Bernstein Litowitz Berger & Grossmann made the complaint public. The tale details the lengths Yahoo went to create a poison pill that would deter Microsoft’s bid for the company. In a nutshell, Yahoo’s compensation plan gave any employee accelerated vesting rights in the event of a merger. In fact, the complaint argues that employees would have been better off if they lost their jobs. As a result, Bernstein Litowitz Berger & Grossmann argues that Yahoo didn’t represent shareholders, as CEO Jerry Yang ran roughshod over the board’s compensation committee.

The festivities begin on page 18 of the PDF.

Here are the key excerpts:

And.

And.

Meanwhile, this nugget details what Microsoft would have been hit with if it bought Yahoo.

Add it up and there is enough detail to annoy large shareholders. The big question is whether they’ll toss Yahoo’s board.

Comments

[arkay:]

I cannot imagine a Jerry Yang doing this. It is so out of hand. The board should be sued for their negligence. If Jerry Yang was so adamant of having Yahoo! is an independent company, he should invest all his money in Yahoo! or take his company private.

2008 Jun 03 12:11 PM

[Alex Filonov:]

I've seen similar plans at other companies. Surprisingly, one of those companies was acquired, and buyer quietly paid the costs. And yes, there were "perverse" incentives: people wanted to be "unvoluntarily" retired, because they've got real big severance packages, as opposed to voluntary retirement. If Microsoft really wanted Yahoo! bad, they'd pay.
I can understand Jerry. He wanted to retain company's main capital, people. In IT, people are replaceable only in theory. If merger was declared, leading to mass exodus, and then failed for some reason (antitrust comes first to mind), Yahoo! would be as good as dead.

2008 Jun 03 03:23 PM

[res ipsa lo...:]

It's not "nuts--it's extreme brinksmanship. Just like in action films when the bad guy grabs the protagonists significant other and puts a gun to their head. They really don't ever intend to pull the trigger as it would be suicide but they are so desperate they make a bold risky move and hope the hero isn't thinking clearly. Yang was willing to kill Yahoo to save it. Microsoft realized the integration and brain drain would make the purchase a nightmare money pit and backed down.

2008 Jun 03 04:35 PM

[Jonathan Scott:]

"It's not nuts--it's extreme brinksmanship." All your examples are from movies; your credibility is lost. You forgot "Barbarians at the Gate" That was all about takeovers; it even had a future Presidential candidate in the movie. He failed in the movie also.

2008 Jun 03 04:43 PM

[usbworks:]

First of all, every takeover target fends off hostile bids in exactly the same way, poison pills, golden parachutes, etc.. Do you think that Jerry Yang invented these techniques? Do you really think Carl Icahn has not resorted to hitting below the belt to win his battles? Do you really believe that billionaires make their billions by fighting fair?

Let's face it, if these idiots are so greedy not to cash out on Yahoo trading above $27 (almost a 50% premium from January) and insist on squeezing out that last $3 when Microsoft buys Yahoo, then they deserve to eat it when the stock falls below $20.

2008 Jun 03 05:26 PM

[On Yang's Side:]

Yang knows what is best for Yahoo! and it's Yahoo!'s. If you think Yahoo!'s would stick around post-merger, waiting for MS to determine their fate, only after a lengthy wait for regulatory approvals - you're nuts! Yahoo! is the sum of it's parts - it's people. Yang has their backs. Kudos to Yang/Yahoo!

2008 Jun 03 11:19 PM

[User 205062:]

Larry ... congrats, you got played by a headline-grabbing plaintiff's attorney. Sucker. I'll continue to get my news from the Wall Street Journal, thank you.

2008 Jun 04 12:08 AM