Lawsuit Docs Reveal Details of Yahoo Fight; Icahn Calls for Yang's Ouster
- By Becky Nagel
- June 3, 2008
Court documents released this week in a shareholder lawsuit against Yahoo assert
that Yahoo CEO Jerry Yang's "hubris" and "deep hostility"
against Microsoft are to blame for the Microsoft deal falling apart, and that
Yahoo's board members should be held personally accountable for the failed deal.
According to the complaint (available here
in PDF format) from a shareholder suit filed in Delaware, Microsoft began courting
Yahoo for possible acquisition back in 2006, a full 18 months before submitting
its written offer in
The suit alleges that Yang's dislike of Microsoft threatened the deal from
the start. For example, according to the complaint, just before Microsoft CEO
Steve Ballmer took his company's written offer public, he contacted Yang to
see if discussions could continue privately, but would do so only if Yang "indicate[d]
a genuine willingness to sell the company," the complaint states.
"Yang, whose antipathy toward Microsoft is well-known and whose deep personal
interest is to retain Yahoo's independence, would not make that commitment,"
the complaint alleges.
But, according to the shareholder suit, the real blame lies with Yahoo's board
for making "no effort to protect Yahoo's shareholders from the known threat
that Yang's deep hostility toward Microsoft would undermine any good-faith negotiations,"
the complaint states. "To the contrary, the Board handed to Yang responsibility
for directing negotiations with Microsoft."
And, if the allegations in the complaint are true, it appears that Yang and
the board worked together in executing strategies that would make Yahoo unattractive
for Microsoft to acquire at any price.
While it's already well-known that Yahoo pursued
a deal with Google to outsource its Web search and advertising soon after
Microsoft's acquisition plans were announced, the complaint alleges that Yang
had previously rejected the exact same deal "after reaching the conclusion
that the internal development of these functions was critical to Yahoo's long-term
The suit also reveals that the board passed a plan proposed by Yang to offer
a large severance to employees who exit the company after an acquisition, thus
creating "huge incentives for a massive walkout" of Yahoo's 14,000
In fact, Yahoo's desire to keep the walkout package from leaking out is one
reason it sued to keep the documents in this suit private. However, the Delaware
judge assigned to the preliminary hearings in the case, Chancellor William B.
Chandler III, ruled to make the documents public Monday, stating,
"Defendants argue that [disclosure] will prejudice Yahoo in its upcoming
proxy contest because such partial disclosure will create an incomplete record
of the circumstance surrounding the adoption of the Yahoo severance plans...The
remedy is not for this Court to permit information that is neither privileged
nor confidential to continue to be filed under seal when defendants have failed
to show good cause."
And, by all appearances, the release does seem to be fanning the fires of the
leading a proxy fight to oust Yahoo's board, billionaire Carl Icahn.
the Wall Street Journal today that Yang simply must go.
"I'm very cynical about many of the boards and CEOs in this country, but
even I am amazed at the lengths that Jerry Yang and the board went to entrench
themselves in this situation," Icahn told the Wall Street Journal.
"It's no longer a mystery to me why Microsoft's offer isn't around,"
he continued. "How can Yahoo keep saying they're willing to negotiate and
sell the company on the one hand, while at the same time they're completely
sabotaging the process without telling anyone."
Yahoo responded to Icahn's accusations in a statement to the Wall Street
Journal that read: "Yahoo's board of directors, including Jerry Yang,
has been crystal clear that it would consider any proposal by Microsoft that
was in the best interests of its shareholders. Mr. Icahn's assertions ignore
this clear factual record."
Microsoft has not publicly commented about the allegations in the suit.