Friday, August 8, 2008
Inside Dope On Yahoo Poison Pill
John C. Cox, a Palo Alto based Labor attorney for the Los Angeles based law firm Manatt Phelps and Phillips LLP was retained as an 'expert supporting declaration' by the Detroit Pension funds who have filed the shareholder lawsuit against Yahoo related to the 'Change in Control Severance Plan' (background).
Excerpts from John Cox's Declaration in Delaware Chancery Court regarding the merits (or lack thereof) of Yahoo's poison pill - The number of months of benefits to be paid is "eye popping" by Silicon valley standards and far exceeds the length of time most Yahoos! wouls need to find alternative gainful employment. ... The at-issue Yahoo! Severance Plans are broader than California law in that they permit Yahoo! emplyees to recover severance benefits even if they are not involuntarily terminated or "constructively" involuntarily terminated.... A Yahoo! could take under the Plans, if involuntarily terminated or in the alternative, if s/he suffered only an "substantial adverse alteration" of his/her job.
He goes on to give concrete examples of how easily a Yahoo! employee could manage to get the severance benefits even under relatively normal and unchanged job duties and circumstances, Plus, the plan calls for individualized review for each employee who seeks recompense under the plan, so that involves a massive allocation of human and legal resources even to deny the severance request. And here's the killer - Microsoft had advised Yahoo that it was earmarking $1.5 billion for retention incentives, but this little piece of information was never made known to the Yahoo! rank and file. See link under refereces for complete docs and court filings related to the shareholder lawsuit.
What's more, I was just browsing through what appeared to be a routine SEC filing from Yahoo (see link below in references), when something caught my eye - Anti-takeover provisions could make it more difficult for a third-party to acquire us - Basically, each share of common stock is associated with a right to buy a Series A Junior Participating Preferred Stock for $250 per unit. And should a person or group acquire 15% or more of common stock and try to take over control of the Board, and provided certain other conditions are fulfilled, then everyone else gets to buy common stock worth $500 in excahange for the $250 exercise price.
And it gets even better. In addition, our Board of Directors has the authority to issue up to 10 million shares of Preferred Stock (of which 2 million shares have been designated as Series A Junior Participating Preferred Stock) and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The issuance of Preferred Stock may have the effect of delaying, deterring or preventing a change in control of Yahoo! without further action by the stockholders...
In a nutshell, if someone takes over Yahoo, then as per all these provisions, the new group or person(s) in charge would (could) find themselves in control of a company which suddenly is valued at less than half of what it was before they gained control. Oh, and if you're thinking of gaining something concrete and forward looking from all this blather, Yahoo states that its possible that the stock could remain volatile in the near future regardless of operating performance. If you're a Yahoo! stockholder or employee with stock options, I pity you - The only way you're going to benefit is if someone takes over the company - And your benefit is exactly the reason why no one wants to take it over. Have fun.
References:
http://www.blbglaw.com/cases/yahoo_takeover.html
http://www.blbglaw.com/casedox/Yahoo-Declaration-JohnFox06-09-08.PDF
http://yhoo.client.shareholder.com/secfiling.cfm?filingid=891618-08-399
Excerpts from John Cox's Declaration in Delaware Chancery Court regarding the merits (or lack thereof) of Yahoo's poison pill - The number of months of benefits to be paid is "eye popping" by Silicon valley standards and far exceeds the length of time most Yahoos! wouls need to find alternative gainful employment. ... The at-issue Yahoo! Severance Plans are broader than California law in that they permit Yahoo! emplyees to recover severance benefits even if they are not involuntarily terminated or "constructively" involuntarily terminated.... A Yahoo! could take under the Plans, if involuntarily terminated or in the alternative, if s/he suffered only an "substantial adverse alteration" of his/her job.
He goes on to give concrete examples of how easily a Yahoo! employee could manage to get the severance benefits even under relatively normal and unchanged job duties and circumstances, Plus, the plan calls for individualized review for each employee who seeks recompense under the plan, so that involves a massive allocation of human and legal resources even to deny the severance request. And here's the killer - Microsoft had advised Yahoo that it was earmarking $1.5 billion for retention incentives, but this little piece of information was never made known to the Yahoo! rank and file. See link under refereces for complete docs and court filings related to the shareholder lawsuit.
What's more, I was just browsing through what appeared to be a routine SEC filing from Yahoo (see link below in references), when something caught my eye - Anti-takeover provisions could make it more difficult for a third-party to acquire us - Basically, each share of common stock is associated with a right to buy a Series A Junior Participating Preferred Stock for $250 per unit. And should a person or group acquire 15% or more of common stock and try to take over control of the Board, and provided certain other conditions are fulfilled, then everyone else gets to buy common stock worth $500 in excahange for the $250 exercise price.
And it gets even better. In addition, our Board of Directors has the authority to issue up to 10 million shares of Preferred Stock (of which 2 million shares have been designated as Series A Junior Participating Preferred Stock) and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The issuance of Preferred Stock may have the effect of delaying, deterring or preventing a change in control of Yahoo! without further action by the stockholders...
In a nutshell, if someone takes over Yahoo, then as per all these provisions, the new group or person(s) in charge would (could) find themselves in control of a company which suddenly is valued at less than half of what it was before they gained control. Oh, and if you're thinking of gaining something concrete and forward looking from all this blather, Yahoo states that its possible that the stock could remain volatile in the near future regardless of operating performance. If you're a Yahoo! stockholder or employee with stock options, I pity you - The only way you're going to benefit is if someone takes over the company - And your benefit is exactly the reason why no one wants to take it over. Have fun.
References:
http://www.blbglaw.com/cases/yahoo_takeover.html
http://www.blbglaw.com/casedox/Yahoo-Declaration-JohnFox06-09-08.PDF
http://yhoo.client.shareholder.com/secfiling.cfm?filingid=891618-08-399
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