C. Janine Hodge

A few weeks ago, I wrote about Microsoft’s bid for ailing Yahoo. As mentioned, it is certainly a situation to monitor, due to the potential implications if Microsoft acquires Yahoo. The stand-off wages on…

Yahoo declined Microsoft’s offer, and instead looked to other sources such as News Corp. Nothing seems to have come from these contacts. However, Yahoo has still refused to consider Microsoft’s bid. Bill Gates does not seem particularly tickled with Yahoo’s unyielding stance, and is quoted as saying the following during an February 18 phone interview:

We sent them a letter and said we think that’s a fair offer. There’s nothing that’s gone on other than us stating that we think it’s a fair offer. They should take a hard look at it.

Given Microsoft’s history of hostile and aggressive action towards competitors (real or perceived), those are fairly ominous words. Yahoo execs seem to have recognized them as such, and the next day filed the necessary papers to create massive severance plans for all Yahoo employees in the event of Yahoo’s sale. The net result of this is that it has now positioned Yahoo as a formidable financial liability for any company that may attempt to take it over (*cough* Microsoft *cough*). From a strategic standpoint, it seems like a sound move.

But wait! What’s this? In short order, Yahoo has been named the defendant in two separate class-action lawsuits. In the past few weeks, complaints have been filed by the Wayne County Employees’ Retirement System of Michigan, the Police & Fire Retirement System of the City of Detroit and the General Retirement System of the City of Detroit. It appears that the shareholders whose retirement funds included Yahoo stock now feel that Yahoo board members are acting to destroy the value of Yahoo stock by refusing Microsoft’s offer and making their buy-out undesirable. In fact, this sentiment is so strong that they are naming the specific Yahoo board executives as the defendants in the lawsuits, thereby leveraging a tremendous amount of pressure on individuals to reverse course.

To me, the most interesting part in this is that Yahoo’s stock has actually risen since this entire debacle began. It has improved from $19.18 on January 31, 2008, to $28.22 as of this afternoon. For those without a calculator, that means Yahoo’s stock is now currently worth ~147% of its value on the day before Microsoft’s offer. Of course, for such a historical Internet giant, we could hope for better, but I still fail to see where this increase in value shores up the claims made in the class-action lawsuits.

I’d love to know how many of those same shareholders, their associates, or their lawyers may have funds invested in Microsoft. It would also be interesting to know whether any Microsoft liaison or affiliate has had any contact in the last few weeks with these individuals. Again looking at Microsoft’s less-than-saintly business practices, I would not be surprised if it is discovered that this is just another way to back-door an aggressive takeover attempt.