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Judge OKs settlement in Yahoo 'poison pill' shareholder suit

Deal narrows scope of severance plan that critics said was blocking potential acquisitions

By Nancy Gohring
March 9, 2009 12:00 PM ET

IDG News Service - Removing a barrier to a potential acquisition of Yahoo Inc. by Microsoft Corp. or another company, a judge in Delaware last week approved a settlement agreement that will narrow the scope of a Yahoo employee severance plan that critics have described as a poison pill.

Judge William Chandler III OK'd the settlement on Friday in the Delaware Court of Chancery, saying in his ruling that the deal could make Yahoo easier to sell — if new Yahoo CEO Carol Bartz and the company's board decide to seek a buyer.

"I conclude that the settlement, obtained by plaintiffs, amounted to a substantial benefit to Yahoo's shareholders because the key terms of the settlement made it less expensive to sell Yahoo, making the company a more attractive target to potential suitors," the judge wrote in his ruling.

Yahoo said in a statement that it's satisfied with the terms of the deal. "We are very pleased that the settlement was approved because we believe it is in the best interests of the company and our shareholders," the company said.

The severance plan was put in place by Yahoo's former management and would have made it easy for employees to leave the company and receive a generous compensation package in the event of an acquisition. Some investors, including the vocal Yahoo critic Carl Icahn, described the plan as a poison pill because the severance payouts would be so expensive that no company would want to acquire Yahoo.

Several shareholder groups, including large pension funds such as the city of Detroit's retirement fund, subsequently filed lawsuits claiming that Yahoo executives and board members had foiled Microsoft's attempted takeover last year to protect their own personal interests to the detriment of shareholders. Numerous lawsuits were consolidated into the complaint that was being heard in the Delaware court.

The settlement, which was first submitted to the court in December, narrows the reasons why employees can quit and still receive the severance package, removing some of the incentives for them to leave the company in the event that Yahoo is acquired.

While the severance plan wasn't the only reason the Microsoft deal didn't go through, it played a role, said Matt Rosoff, an analyst at Directions on Microsoft in Kirkland, Wash. "It wasn't a deal-breaker, but it was an indication that Yahoo didn't want to be acquired," he said. Rosoff added that he sees the settlement as a sign "that under new leadership, Yahoo is more amenable to a deal."

Yahoo co-founder Jerry Yang fought off Microsoft's acquisition bid as well as a later effort to negotiate an online search partnership. But Yang resigned last fall after a proposed online advertising deal with Google Inc. fell apart and Yahoo's business fortune's failed to improve.

Bartz, who replaced Yang in January, has said that she doesn't intend to publicly discuss any potential negotiations with Microsoft or other suitors. For his part, Microsoft CEO Steve Ballmer has continued to say — most recently at a meeting with financial analysts late last month — that some sort of partnership between Microsoft and Yahoo makes sense.

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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