Yahoo has lost a battle to keep information about its operations confidential after a judge decided to unseal documents filed by shareholders suing the company over its handling of Microsoft’s unsolicited acquisition offer.
Delaware Chancery Court Judge William Chandler ruled on Monday that the court shouldn’t keep documents such as the plaintiff’s complaint under seal, despite Yahoo’s arguments to the contrary.
Now, the complaint and the judge’s decision have become available on the Web on the site of Bernstein Litowitz Berger & Grossmann LLP, a law firm representing the plaintiffs.
The 64-page complaint is chock-full of blistering allegations, copies of internal Yahoo documents and e-mails and blow-by-blow accounts of what plaintiffs characterize as Yahoo bad-faith maneuvers. It will likely have a damaging public opinion effect on Yahoo, as the company battles other lawsuits and gets ready to face a proxy fight led by Carl Icahn to replace its board members in July. The complaint had been made available previously but with portions redacted.
“We’re disappointed with the ruling in Delaware, but this is a routine legal matter and we’re sure it won’t have any impact on the outcome of the case, which we believe is without merit,” said Yahoo spokeswoman Diana Wong.
The class-action lawsuit, filed in February on behalf of Detroit’s Police & Fire Retirement System and General Retirement System, alleges that Yahoo’s directors and top managers failed to look out for shareholders’ best interests by rejecting Microsoft’s offer.
The plaintiffs allege that directors and top managers, including co-founder and CEO Jerry Yang, actively tried to derail Microsoft’s efforts to negotiate a mutually beneficial acquisition agreement. The complaint places much of the blame on Yang, describing him as someone with a “well-known” antipathy toward Microsoft who acted out of a personal interest to keep Yahoo independent.
Meanwhile, the plaintiffs blame the directors for allegedly relying on Yang to lead the negotiations with Microsoft, but Yang instead “used that power to delay, to refuse to negotiate in good faith and to erect roadblocks,” the complaint reads.
In particular, the plaintiffs take issue with Yahoo’s change over employee severance plans, which the plaintiffs interpret as a way to scare Microsoft away from the deal, “throwing sand in the gears of Microsoft’s plans for a smooth integration.”
The severance plans, according to the complaint, reward employees “with rich benefits” if they quit as a result of the company getting acquired.
For example, the plans let all Yahoo employees resign “and pocket generous termination benefits at any time during the two years following a takeover” by claiming that their job duties and responsibilities were adversely altered, according to the complaint.
The plaintiffs also cite Yahoo’s negotiations to outsource part of its search advertising business to Google as another example of a “poison pill” tactic to discourage Microsoft from pursuing the acquisition.
“Plaintiffs seek all available recourse for Yang’s disloyalty and the Board’s bad faith indulgence of Yang’s conduct, which cost Yahoo shareholders the opportunity to realize a 72 percent premium over the unaffected market price,” the complaint reads.
Microsoft announced its unsolicited offer to buy Yahoo on Feb. 1—a $44.6 billion cash-and-stock deal that offered shareholders a 62 percent premium over Yahoo’s stock price the day before.
Yahoo’s board rejected that offer, saying it undervalued the company, and Microsoft later increased it to $47.5 billion, but Microsoft eventually walked away from the negotiations on May 3 after the two sides failed to agree on a price.
After Microsoft withdrew its offer, several large Yahoo institutional investors publicly criticized Yang and the board for, in their view, not negotiating in good faith and failing to look out for shareholders’ best interests.
Yang and other Yahoo executives responded by saying that they were open to negotiating further but that Microsoft unexpectedly walked away without ever putting its last offer in writing.
Meanwhile, billionaire investor Icahn has been busy acquiring Yahoo stock and submitted a slate of candidates to unseat Yahoo’s current directors, who are all up for re-election at the company’s shareholders’ meeting in July.
Icahn’s intention is to re-ignite merger negotiations, but Microsoft officials have indicated that the company isn’t interested in buying all of Yahoo anymore.
Microsoft did acknowledge on May 18 that it has approached Yahoo with a proposal to enter into a more limited partnership or deal, which many observers believe likely involves Yahoo’s search advertising business.
According to the plaintiffs, Microsoft made several unpublicized overtures to acquire Yahoo in 2006 and 2007, including a $40 per share offer in January of last year. The board authorized then CEO Terry Semel to reject that offer.