|Delaware Court of Chancery
|C.A. No. 3561
|01/31/2008 - 12/07/2008
Shareholder class action filed on behalf of the Police & Fire Retirement System of the City of Detroit and the General Retirement System of the City of Detroit (collectively "Plaintiffs") (the "Detroit Funds"), and all other similarly situated public shareholders (the "Class") of Yahoo! Inc. ("Yahoo" or the "Company"). On March 5, 2008, The Hon. William B. Chandler III, Chancellor of the Court of Chancery of the State of Delaware , granted the Plaintiffs' motion to consolidate the several pending shareholder class actions, appointing the Detroit Funds as Lead Plaintiffs and BLB&G as Co-Lead Counsel for the Class.
This action alleges that the Board of Directors at Yahoo breached their fiduciary duties by refusing to respond in good faith to Microsoft Corporation’s (“Microsoft”) non-coercive offer to acquire Yahoo for $31 per share - a 62% premium above the $19.18 closing price of Yahoo common stock on January 31, 2008. The initial complaint filed on February 21, 2008 alleged that Yahoo pursued an “anyone but Microsoft” approach, seeking improper defensive options to thwart Microsoft at the expense of Yahoo’s shareholders, including transactions with Google, AOL, and News Corp. The Complaint also alleged the Yahoo Board adopted improper change-in-control employee severance plans designed to impose tremendous costs and risks for an acquirer by rewarding employees with rich benefits if they quit and claimed a constructive termination in the wake of merger.
Following consolidation of related cases and appoint of the firm as co-lead counsel by Chancellor Chandler on March 5, 2008, plaintiffs requested expedited proceedings and immediately commenced discovery, including document reviews and depositions of certain third parties and defendants.
As mentioned, a major focus of this litigation was a challenge to two Change-in-Control Employee Severance Plans that the Yahoo board of directors adopted in immediate response to this shareholder-supported offer. The severance plans were alleged to be unique, in that they created over $2 billion of potential liabilities for any acquirer of Yahoo, without actually serving legitimate employee retention purposes. In other words, the severance plans were being used to deter and hinder Microsoft’s offer, rather than being used to create shareholder value. Ultimately, even after Microsoft increased offer to $33 per share, Yahoo rejected Microsoft’s advances, denying Yahoo shareholders the opportunity to realize this significant premium. Microsoft abandoned its efforts soon after, and Yahoo’s stock price has since plummeted.
After Microsoft withdrew its offer and activist investor Carl Icahn launched a proxy fight to replace the Yahoo board of directors, principally based on a desire to bring Microsoft back to the negotiating table. Prior to the August 1 annual meeting of Yahoo shareholders, the Court declined to grant plaintiffs an expedited trial on the challenge to the Severance Plan claims, indicating that the claims could be resolved in a normal litigation schedule. Shortly thereafter, settlement negotiations commenced to determine whether the Yahoo board would agree to eliminate the improper severance plans or to substantially amend their terms.
In December 2008, we informed the Court that the parties had reached a settlement of the action and explained the terms of the settlement. The settlement provided significant benefits to Yahoo’s shareholders as it included substantial revisions to the two challenged Change-in-Control Employee Severance Plans that the Yahoo board of directors adopted in immediate response to Microsoft’s offer back in February of 2008. These revisions included changes to the first trigger of the severance plans by modifying what constitutes a “change of control” as well as changes to the second trigger by narrowing what amounts to “good reason for termination” or when an employee at Yahoo could leave on his own accord and claim severance benefits. Finally, the settlement provides for modifications to reduce the expense of the plan.
The Court preliminarily approved the settlement and we provided notice to the class. Subsequently, on February 3, 2009 we submitted Plaintiffs’ papers in support of final approval of the proposed settlement and the Court approved the settlement on March 6, 2009.