Tuesday, June 3, 2008

Sand in the Gears

The Chancery Court in Delaware unsealed a fascinating complaint this week, in litigation that might end up changing the rules for acquirers and their targets alike.

The complaint is one that was filed in January by two Detroit-based pension funds with an equity interest in Yahoo. It alleges that in October of last year, Yahoo's board and its chief executive, Jerry Yang, already expected a Microsoft bid to acquire the company and discussed ways of thwarting same.

That isn't suspect, although any board discussing such a matter should be sure that the minutes contain plentiful references to everyone's desire to maximize shareholder value.

What the pension funds objected to was what they actually adopted in that line, a generous and highly unusual severance plan designed to make acquisition of the company (which would of course bring with it the inheritance of the costs of the severance plan) prohibitively costly.

The complaint calls this "throwing sand in the gears of Microsoft's plans for a smooth integration," thereby breaching fiduciary duties.

On another Yahoo-related front...the Wall Street Journal's personal-technology columnist, Walt Mossberg, interviewed Jerry Yang, and the company president Sue Decker, at the "All Things Digital" conference last week.

SOme of the transcript sounds like a tutorial, in which Mossberg is seeking to instruct the two Yahoo honchos in how lucky they were, because Microsoft could have made things much tougher for them, but didn't ... backed off quickly and started talking about joint ventures rather than an acquisition.

This raises the old chicken-egg question of entrepreneurship. Does fortune favor the bold? Or do observers simply label as bold those whom fortune has favored?

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