Verne Kopytoff,Tom Abate, Chronicle Staff Writers
Tuesday, May 6, 2008
Investors pummeled Yahoo Inc. stock Monday, sending the company's shares down 15 percent after Microsoft Corp. dropped its high-profile takeover bid for the Web portal over the weekend.
Yahoo shares fell $4.30 to $24.37 in the first day of trading after Saturday's announcement. The sell-off suggests that many shareholders wanted a merger.
With none imminent, some disappointed investors plan to revolt by voting against all of Yahoo's board members at the next annual meeting. Yahoo faces the prospect of shareholder lawsuits for failing to accept a deal, adding to the handful filed over the past few months that are already
winding through the courts.
Yahoo shareholder Eric Jackson said he is upset by Yahoo's decision to reject the merger and complained that the company's board had "played chicken with shareholder money." He plans to organize fellow shareholders to try to unseat Yahoo's board and potentially offer a competing slate at the company's annual meeting, which is set for July 3.
Jackson, who owns 96 shares and has been a thorn in Yahoo's side in the past, has been joined in his quest by about 140 shareholders who collectively own 2 million Yahoo shares.
"This board bungled the negotiations from the beginning," he said.
Kevin Landis, chief investment officer with San Jose's Firsthand Funds, which owned 460,000 shares of Yahoo at the end of 2007, the most recent total available, was of a similar mind.
"I think that was a pretty good-looking bird in hand and that they should probably have taken it," he said.
In a blog post late Sunday, Yahoo Chief Executive Officer Jerry Yang insisted that the prospect of a merger has made Yahoo a "stronger, more focused company with an even greater sense of purpose." He said that Microsoft's offer simply wasn't in the best interest of shareholders and that his company can now better focus on its turnaround plan.
"No one is celebrating about the outcome of these past three months ... and no one should," he wrote. "We live and work in a competitive world, and the Web is only going to get more competitive. Executing on our strategic plan is what matters most."
What if shareholders sue over the collapse of the deal?
Kevin LaCroix, an attorney with OakBridge Insurance Services, a Connecticut firm that protects board members, sketched out the legal landscape. He noted that the saga began with an unsolicited offer or "bear hug" from Microsoft.
That forced Yahoo's board of directors to act as legal fiduciaries for shareholders. That term, from the Latin fiducia, or trust, requires that board members evaluate the Microsoft offer based on whether it is best for shareholders, independent of their own financial or personal interests in the company.
Referring to the shareholder lawsuits filed earlier in the drama, LaCroix said those cases alleged that the deal wasn't rich enough. These are called "bump up" suits, he said, and they are common because if and when deals close higher than their starting price, plaintiffs can argue that their action benefited shareholders and that they should therefore be rewarded by at least having their attorneys' fees paid.
But now Microsoft has walked away from Yahoo, LaCroix said, shareholders could file a different type of a suit called a "bust up" action. Shareholders would have to prove that the board breached its fiduciary responsibility in rejecting the deal because it isn't enough to say the deal collapsed and the stock went down.
"Courts generally won't second-guess decisions that are made by boards," LaCroix said.
Any bust up suit would likely be filed in Delaware, the state in which Yahoo is incorporated. Delaware attorney Francis Pileggi, an expert in such cases, said boards have considerable latitude to reject unsolicited offers like Microsoft's bear hug, as long as they have prudent reasons to believe that independence or some other strategy would be in the best long-term interests of shareholders.
So as long as Yahoo's board was appropriately counseled on the pros and cons of the deal, it would be tough for shareholders to claim foul just because the stock price sank after the deal fell through, he said.
Attorney Edward Deibert, with the Howard Rice law firm in San Francisco, said Yahoo's board must now convince investors that its plans will be better for shareholders than Microsoft's bid.
"Now they are under pressure to deliver something," Deibert said.
Yahoo's board has contended that Microsoft's bid, ultimately valued at $47.5 billion, or $33 per share, substantially undervalued the company. The board demanded $53 billion, or $37 per share.
Negotiations collapsed on Saturday.
Yahoo's stock didn't fall Monday as low as $19.18, where it traded just before Microsoft made its bid Jan. 31. Instead, it held at a middle ground, partly because of the possibility that Microsoft could make another bid.
From the Latin word fiducia, meaning trust. A fiduciary is legally responsible to act in the best interests of those whose financial assets the person or company manages; in this case, Yahoo board members hold a fiduciary responsibility to the company's shareholders. It wouldn't be enough for shareholders to claim the stock went down after the deal collapsed. They would have to prove the board breached its fiduciary responsibility by letting some conflict stand between the deal and the best interest of shareholders.
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Tuesday, May 06, 2008
Verne Kopytoff,Tom Abate, Chronicle Staff Writers