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Yahoo said that Microsoft’s $44.6 billion bid to acquire it has spawned seven class-action lawsuits from shareholders claiming the Internet company breached fiduciary duty by rejecting the offer.
The company also acknowledged in its annual report to the Securities and Exchange Commission Feb. 27 that Microsoft’s bid has created a distraction for Yahoo’s management and has introduced uncertainty that could hurt the Internet company’s beleaguered business.
Yahoo said four separate shareholder lawsuits have been filed in the California Superior Court against Yahoo, members of the board of directors and some former officers by plaintiffs Edward Fritsche, the Thomas Stone Trust, Tom Turberg and the Congregation Beth Aaron.
Even though Yahoo roundly rejected Microsoft’s offer Feb. 11, plaintiffs in two of the California lawsuits allege that Microsoft’s Feb. 1 unsolicited proposal to buy Yahoo is inadequate and that the Yahoo’s board breached fiduciary duties by considering Microsoft’s unsolicited proposal.
The plaintiffs in the other two California lawsuits claim that Yahoo breached fiduciary duties by failing to negotiate a transaction with Microsoft or other potential bidders in the past and presently.
The complaints in the California suits seek declaratory and injunctive relief, and request Yahoo be made to pay the plaintiffs’ attorneys fees and costs.
Like the California suits, three suits filed in Delaware court allege breach of financial duty but for slightly different reasons.
Wayne County Employees’ Retirement System, Ronald Dicke, and The Police and Fire Retirement System of the City of Detroit along with The General Retirement System of the City of Detroit allege Yahoo breached fiduciary duty by rejecting Microsoft’s offer without fully informing themselves of whether Microsoft would offer additional consideration.
One of the Delaware lawsuits alleges that the board has pursued various blocking transactions, adopted an employee severance plan, and a shareholder rights plan in violation of fiduciary duties.
Yahoo employees are sweating
The complaints in the Delaware Lawsuits also seek unspecified damages, declaratory relief and injunctive relief, as well as an award of plaintiffs’ legal fees and costs.
Yahoo acknowledged in its report: “We may incur substantial expenses in defending against such claims, and it is not presently possible to accurately forecast their outcome,” Yahoo said.
The company added that should the courts find against Yahoo, it may incur substantial monetary liability, and be required to change its business practices, which could have a material adverse effect on its financial position.
Meanwhile, the Yahoo executive team is admittedly sweating, noting in the report that Microsoft’s proposal has been and may continue to be a “significant distraction” that will require the expenditure of significant time and resources.
The company also acknowledged the bid has created uncertainty for its employees, which will likely impinge its ability to retain employees and to hire new talent.
Just as foreboding, Yahoo warned the offer may affect its ability to retain current and attract potential publishers, advertisers and other business partners.
The company acknowledged the creation of a poison pill that would dilute the ownership of Yahoo stock if a person or group acquires 15 percent or more of its outstanding common stock.
Meanwhile, Microsoft is said to be preparing for a proxy fight to oust current members of the Yahoo aboard, all of whom are up for re-election at the annual shareholders’ meeting in June.
Though this is a more difficult and unpredictable route than a capitulation by Yahoo, Microsoft would likely sway shareholders to install Microsoft employees as board members to facilitate a tender offer.