Detroit Pension Funds Sue Yahoo

February 22, 2008 ( - Apparently Microsoft isn't the only one perturbed by Yahoo's reticence to accept its $44.6 billion takeover bid.

Two Detroit pension funds have sued Yahoo and its board of directors, saying they breached their duties to shareholders in trying to thwart a takeover by Microsoft.   According to the Associated Press, the lawsuit was filed in Delaware Chancery Court by lawyers representing Detroit’s police and fire retirement system and general retirement system, as well as “all other similarly situated public shareholders.”

Yahoo’s board rejected Microsoft’s $44.6 billion takeover bid as inadequate, but indicated that it might be willing to negotiate if the price was right (according to the AP, Yahoo is believed to want at least $40 per share, or about $56 billion).   Since the bid for Yahoo was announced, the Internet search firm reportedly has initiated discussions with News Corp. and Google about possible collaborations.  

Value Destructive

According to the lawsuit, Yahoo’s board is pursuing “value-destructive” third-party deals in an effort to fight off the Redmond, Washington-based software giant, which on February 1 announced a takeover bid of $31 per share in cash and stock, a 62% premium over Yahoo’s previous day’s closing price.

The two plaintiffs in the most recent filing, Detroit’s Police and Fire Retirement System and General Retirement System, are concerned about news reports of a “potential imminent deal” sought by the Yahoo board with News Corp or AOL that would not require a shareholder vote, according to Reuters.   The plaintiffs have petitioned the court to block the Yahoo board from completing any such transaction with those companies, to force it to reconsider Microsoft’s offer, and to block it from implementing defensive measures that would render the company unattractive to potential buyers.   Earlier this month, the Wayne County Employees Retirement System sued Yahoo in a Michigan court.

“Blatant Effort”

A sticking point for the pension funds was the adoption of new severance packages that would protect employees in the event of a Microsoft takeover, a move the lawsuit labels as a blatant effort to drive up the cost of an acquisition.   “Yahoo’s directors cannot ‘just say no’ indefinitely to legitimate acquisition offers,” the lawsuit reads, according to the AP. “Likewise, Yahoo’s directors cannot pursue transactions that do not require shareholder approval for the primary purpose of making Yahoo unattractive to Microsoft.”

Meanwhile, Microsoft has hired a proxy solicitation group to help oust the 10 members of Yahoo’s board, all of whom are up for re-election this year.

“An imminent proxy fight necessitates judicial intervention since it poses a deadline for Yahoo’s board to place shares in friendly hands,” according to the plaintiffs, who allege that Yahoo board members have placed “personal distaste for Microsoft” ahead of shareholder welfare.

“Regardless of their emotional ties to Yahoo and their desire to retain their positions as directors at the company, the Yahoo directors owe fiduciary duties to Yahoo and its shareholders,” the lawsuit states.