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Yahoo Sued for Spurning Microsoft
Posted by
ScuttleMonkey
on Sat Feb 23, 2008 02:41 AM
from the getting-hit-from-all-sides dept.
from the getting-hit-from-all-sides dept.
tuxgeek writes "In the continuing saga of Yahoo resisting a Microsoft buy out, Yahoo is now being sued by its shareholders. 'Two Detroit pension funds have sued Yahoo Inc. and its board of directors, saying they breached their duties to shareholders in trying to thwart a takeover by Microsoft Corp. The lawsuit was filed in Delaware Chancery Court on Thursday by lawyers representing Detroit's police and fire retirement system and general retirement system, as well as 'all other similarly situated public shareholders.'"
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Beholden to short term investors (Score:5, Insightful)
Re:Beholden to short term investors (Score:4, Interesting)
Re:Beholden to short term investors (Score:5, Funny)
Killing the goose that lays the golden eggs (Score:5, Informative)
It's more than a case of killing the goose that lays the golden eggs. Gatesists made clear that they would not take "no" for an answer [searchenginewatch.com] and would continue their plans against Yahoo one way or another. These so-called pension funds are likely part of that approach and just softening up Yahoo, while setting the media against the board in prep for its ousting. One point which is unlikely to ever make many mainstream news sites or forums, even open source ones like Slashdot, is that Microsoftologians are likely to try to replace Yahoo's board [vnunet.com]. Poisoning the press against the board is a first step.
Later, preventing the Yahoo employees from jumping off with golden parachutes might be a repeat of what MS did to Borland [news.com], except against key open source projects. Yahoo contributes in a big way to many open source projects, PHP and BSD being two Very Important (tm) ones. Getting Yahoo would crush a competitor to the spectacularly failed MSN. So without the 'chutes many would have to stay and MS could simply have them sweeping floors or making coffee.
There is also the question of Zimbra [zimbra.com], which was recently purchased by Yahoo. MS Exchange is about the only thing that ties Windows into either/both the desktop and the server room. Zimbra is one of the few competitors to MS Exchange, besides Kolab [kolab.org] and Citadel [citadel.org], none of which get much press. Quite a few shops would stop or drastically decrease use of MS products without MS Exchange. Zimbra is currently not GPL. Buying Yahoo would allow Zimbra to be put on ice as MS did with FoxPro [foxprohistory.org]
Advertising, aka tracking users, is another problem. MS execs want into advertising. Controlling the adservers allows a chance, finally, at income. It also allows access to be tweaked. Ads get served up first before content and delay, especially at the beginning, drastically reduces viewing time and thus mindshare. The first moments are crucial and studies show that the cap is set at 20s. A delay, on purpose or by accident, of even a fifth of a second x one million page views is hundreds of lost viewing hours. So the potential for severe abuse is there in addition to the technical problems MS services and servers are known for.
At the bottom is also a question of money. Many articles somehow neglect that much of the initial offer was funny-money, aka MSFT stock, which MS prints on demand. The noise and smoke about the attempted take over does well at drawing attention away from what must be some rather 'creative' book keeping there in Redmond.
There are plenty more possible reasons to go after Yahoo's board. Having sockpuppets poison the press makes sense for many of them.
Zimbra, Domino, Byarni, Groupwise (Score:5, Insightful)
Yep. With Zimbra, Kolab, and Citadel that makes six. However, the magazines and newspapers don't dare write a word about them, even if they would. In addition to being one of the last remaining advertisers, MS has fifth-columnists [groklaw.net] working against competition in many places. It's not a conspiracy, just greed and/or politics.
There fixed that for you. It's one aspect near the heart of the 10+ year anti-trust trial MS lost in 2004 [bbc.co.uk] and lost in appeal for in 2007 [arstechnica.com].
If Windows or any of the products worked with standards, then it would be possible to swap out components. One reason for the extreme suckitude is that the lock-in guarantees no competition. Old habits die hard and going way back, MS DOS 4 sucked rocks a market for DR-DOS which in turn caused MS-DOS 5 which unlike 4 was usable. Same for the Windows-Outlook-Exchange, except now there is lock-in to such an extent that businesses have to be quite serious about dropping MS and getting into functional products.
Re:Beholden to short term investors (Score:4, Insightful)
But like you said the pension funds don't seem to be interested in long-term growth - they'll most likely pull out the money right after the companies have merged (it's not that they hold the stock much longer in case they don't merge). I don't like to judge this behavior. Pension funds are obligated to do whatever is necessary to maximize the profit of their investment. One might argue that this is very much the same case if you hold stock as an individual, but I'd argue that there is less freedom of choice if you manage the money of maybe hundreds or thousands of individuals.
Re:Beholden to short term investors (Score:5, Insightful)
I would add that MS would be buying up a competitor, and it's all too common for companies to buy competitors to leave them to wither and then close them down after they sucked up all valuable assets and clients.
As an individual shareholder I'd be primarily worried about that scenario, and I wonder why a fund forgets about it.
I would also add that suing your own company brings bad publicity to it- are they interested in their company well being or what?
Sorry but conspiracy theorists linking such a move to MS pulling strings have the most reasonable scenario here.
Oh by the way, dear real shareholders: the minute you sell to MS I'm canceling my subscription to yahoo. I do not trust MS to do something different with yahoo than what they did to hotmail. Besides, since I am a linux user and hobby dev for OSS software, you'd basically sell my data to the enemy. Double plus ungood.
Re:Beholden to short term investors (Score:5, Insightful)
Yes, the logic is flawed, but it's your logic. It doesn't matter what sort of wealth Yahoo can generate long-term if they are owned by Microsoft because the current Yahoo shareholders will not be shareholders at that point. Basically the logic to the lawsuit goes like this:
Yahoo was trading around $19 a share, with little prospect of going up and a high likelihood that they will continue their slide.
Microsoft offered $31 a share for Yahoo.
Yahoo is unlikely to hit $31 a share in any situation other than a buyout offer.
Yahoo shopped around and played coy to see if they could get a comparable or better offer from anyone else, and they didn't.
Therefore, in order to maximize their investment a Yahoo shareholder should take the $31 offer and run.
After that, Yahoo is a wholly owned subsidiary of Microsoft and the current shareholders own none of it, so how much value Yahoo can generate at that point becomes irrelevant.
Now it's true that since the offer Yahoo's share price has jumped up to around $28 a share. But since Yahoo has done nothing to improve their outlook in the past month it's safe to assume that this jump is due to Microsoft's offer. If Yahoo were to ultimately reject the offer and Microsoft would back down, you'd probably see Yahoo's stock price drop to a level even lower than it was at the time the offer was made as many investors will probably write the company off as a lost cause.
At any rate, it's all proceeding according to plan. Yahoo will ultimately accept the offer, or they will face even more shareholder lawsuits. If they still refuse to sell they will most likely face the replacement of their board of directors with a group who are MS-friendly. As I said here [slashdot.org], it's the shareholders who have the final say on this deal, and they'll say yes.
Re:Beholden to short term investors (Score:5, Interesting)
Shareholder lawsuits are guaranteed to occur any time a company does (or declines to do) any significant action that might affect the price of the stock. They are not an event. They are not newsworthy except as an indication of our broken legal system.
Re:We need a name for the combined company. (Score:5, Funny)
this might be interesting (Score:5, Interesting)
My take is that shareholder lawsuits are never a given in this country. There is a good possiblity that Yahoo will just show in court that their managerial view of the long view showed greater long term shareholder value in avoiding the merger. there is a good possibility that the suit might be dismissed on face. However, this doesn't always happen. If these investors are large enough, or find other plaintiffs who are, the mere public pressure of the suit could pressure the Yahoo board to do a few possible things:
1. Make a deal with microsoft to put it up to a vote of shareholders.
2. Just go ahead with the deal anyways.
I can't remember the last time a lawsuit like this went through off the top of my head. But I know that the record on them is not completely one-sided. I'll do some digging and be back
Re:this might be interesting (Score:5, Informative)
First off, like all corporations, Yahoo is incorporated in Delaware, which is very corporation friendly (hence the proliferation of most companies incorporating there, regardless.
Second of all, courts will normally give the board of directors the initial benefit of the doubt by utilizing something called the Business Judgment Rule (it's on wikipedia), which basically says that the courts will very rarely second-guess the actions of the board providing that the actions taken were 1. In good faith. 2. Done with the minimal care that an ordinary person in the board's shoes would have done and 3. Done with a reasonable belief that it was in the best interest of the company.
In other words, short term investors simply being pissed off for not making money is not a good enough reason to bring this suit passed the initial phase.
Finally I know I'm probably wrong since I didn't get a good grade in business associations, but real law folk feel free to correct if needed.
Re:this might be interesting (Score:5, Interesting)
Under this standard the Corporation's Board of directors is presumed self-interested, and must show (1) reasonable grounds for believing the taker over is dangerous to corporate policy and effectiveness, and (2) that their defense against the takeover is reasonable in proportion to the threat posed. Only if these two things are shown will the BJR be applied.
While it is definitely harder to satisfy than the BJR, I still think Yahoo can make some credible arguments to satisfy the Enhanced Scrutiny Standard, especially with respect to how Yahoo would fit within the greater Microsoft corporate structure.
However, what's more interesting is whether Yahoo's comments about wanting a $40 per share price constitutes an attempt by the board to actively sell the corporation. If the that's the case, the Board has effectivley put itself in an situation where it has a duty to get the best price possible for its shareholders and act in good faith with respect to obtaining that price. This the so called Revlon Rule.
Given the available information, it's arguably clear that $40 per share is just a pipe dream, especially since Microsoft is the only bidder. Yahoo's Board, by rejecting Microsoft's offer and countering with an unreasonable offer is arguably acting in bad faith, especially if the $40 offer is just a ploy and not a real negotiating strategy. Given that Yahoo is also attempting to entrench their employees [informationweek.com], their overall course of conduct does not appear to be proper and in the interest of maximizing shareholder value for a company that is essentially putting itself up for auction.
In sum, Yahoo's board is going to argue for enhanced scrutiny to apply, while the plaintiffs will be arguing for Revlon to apply, and both probably have good arguments as to the matter. It'll be interesting to see how the court draws the line on this one.
Re: IAALS (Score:5, Funny)
Yew herd I.T. hear forth.
Re:this might be interesting (Score:4, Informative)
Re:this might be interesting (Score:4, Insightful)
But....
I don't think that is the whole story. It isn't an insider affair, IMO. What it might be is a hedge against volatility. The only thing better than knowing if your stock will suddenly increase in value is knowing WHEN your stock will suddenly increase in value. If you can force the issue via legal action (iffy) then you can justify the purchase of more shares on the notion that your lawsuit will result in a much higher share price ue to a buyout. So. Large firm sees buyout rebuffed. Large firm sees a chance to reap known profits via legal action. Large firm sues.
I am not suggesting that these firms bought Yahoo in order to bring this lawsuit. What I am suggesting was that it seemed to be a convenient way around future price fluctuations--not an insider job.
michiganese (Score:5, Funny)
Yahoo just got "Detroited."
If the MS buyout does go through... (Score:4, Informative)
Here is a MicroHoo related stories box at MSNBC @ http://www.msnbc.msn.com/id/23237868/ [msn.com]
Microsoft: Yahoo would stay in Silicon Valley
Microsoft bid 'unnerving' to Google co-founder
Analysis: Microsoft will win proxy battle
Microsoft to authorize Yahoo proxy battle
Gates: Microsoft's offer to Yahoo is fair
Yahoo's big investors may back Microsoft
Yahoo's CEO explains Microsoft rebuttal
Newsweek: Why this deal won't happen
Why Google will remain king of search
Vote: Can Microsoft-Yahoo beat Google?
Guess which link doesn't work?
Newsweek: Why this deal won't happen
Page not found Our web servers cannot find the page or file you asked for. The link you followed may be broken or expired.
http://www.newsweek.com/id/110796 [newsweek.com] Nope not expired, guess it was just misplaced.
Oddly enough this link works fine Why Google will remain king of search [msn.com] I guess it was left to show that there are no antitrust issues.
On the story itself
The company also adopted new severance packages that would protect employees in the event of a Microsoft takeover, a move the lawsuit labels as a blatant effort to drive up the cost of an acquisition.
It couldn't be an attempt to protect their employees, nah what does that have to do with profits?
The company said in a Securities and Exchange Commission filing Tuesday that workers who lose their jobs without "cause" or quit "for good reason," as Yahoo defines it, would continue to receive their salary and medical benefits for four to 24 months, plus reimbursement for "outplacement services" for two years. A Yahoo spokeswoman would not say what might constitute good reason.
I dunno, how about: I was purchased by a soul crushing monopolist.
Re:Wow (Score:4, Insightful)
the managers may feel that they want to take Yahoo in a certain direction not dictated by microsoft, and that is all well and good, but it sounds less noble when you realize that the money they are using to do that is not theirs. It is the money of the tens of thousands of investors in their company that has allowed them to do this. No one is a hero here.
Re:Wow (Score:4, Interesting)
This is more likely a long term outlook 'retirement fund'...a pair of funds that right now are in their 'high risk' or 'moderate risk' spans of time. The folks putting in to these funds right now should be in their 20's to 40's. A small hiccup now is not going to be a major factor 30+ years from now...these idiots are just trying to sue their mistakes away because they've already made too many poor investments.
Re:Wow (Score:4, Interesting)
Those poor schmucks that dove into Blackstone at $40/share when it went public probably wish they could sue now that it's down to $15. (Yea, it "opened" at $34 but not to the general public. When the market opened to the public, it bolted up to $40, been going down ever since.)
This is why stocks are risky investments. They're not guarenteed and not insured. You can lose money. If you want a sure thing, invest in Treasury Bonds.
Hardly just a childish rivalry (Score:5, Insightful)
There's *so* much more going on here than that.
The most important thing is that Microsoft would destroy the company as it's known now. They'll mess with the back-end technology, swapping in their own, they'll merge some stuff with Windows Live and vice versa, they'll kill anything that's a threat to their desktop hold or they'll limit its prime interoperability to Microsoft products. Features will become dependent on IE and Silverlight.
In short, its goals will go from being a premiere portal and online services company to being anything that can maintain and enhance Microsoft's dominance. Lots of people who work there would rather work for the former than the later (and it *will* hemorrhage key employees if they're bought for that reason). And some of them even have a damn good argument that the company is worth more long term if it serves the former goal. It's not unlikely they'll achieve it, and especially as the desktop becomes less and less relevant, I think they have the potential to outdo Microsoft in terms of their worth.
Short term, of course, you can get quite a good cash-out on the offer MS made... especially compared to anything else available while the markets in general are struggling. And lots of suits and shareholders don't know how to think any other way than short-term gains.
Re:Hardly just a childish rivalry (Score:5, Interesting)
Yahoo, as evidenced by the chronic underperformance (they can't even consistently meet their OWN guidance, let alone Wall Street's), is not a well run company and certainly is not living up to its potential. While I'm not convinced Microsoft can fix what's wrong with Yahoo and certainly not convinced it wants to buy Yahoo for only that purpose, I am convinced that the board and management have no clue what they are doing, and clearly at the very least is ambivalent toward their shareholders. I'd go so far as to venture that Yahoo's board has contempt for them. If Yahoo does remain independent, it wouldn't surprise me to see a revolt against the board at the next shareholders meeting.
Yeah, like Bungie (Score:5, Insightful)
Re:wait a minute? (Score:4, Insightful)
Gambling doesn't require a house but most of the games we think of do. The reason people aren't usually out there making money on the craps circuit isn't because of the ups and downs. It is because the odds in craps are DESIGNED so that you will never win, on average. The expected value of one dollar played on a craps table over the long run is about 92 cents. In the end, you are losing money. On the contrary, there are games of chance that people do make a living on. Very famously, people have made a living on poker. In this case, the house takes a cut, but it doesn't impact the odds of winning or make it so that the expected value of a dollar in over the long run is less than a dollar out.
I will continue to say that it is ignorant of you to compare gambling to equity finance. Do you understand what portfolio diversification is? It is almost PRECISELY investing in the average stock in order to limit damage to the portfolio due to volatility. You find two investments (or more, really) that will respond differently to a single market change, and you invest a little in both. the ma expected return is lowered, but the variance is lowered even more. It's a fundamental tenet of smart finance and it is nothing like gambling at all.
Are there nonzero risks in the stock market? Sure. If you want to define gambling as taking risks beyond your control with your money than treasury bills are gambling. You said before that the US has never defaulted on its explicit debt and you are correct, but the risk is still there. If you want a risk free investment strategy, take your money and put it in a checking account. It is protected by the FDIC, some even offer a small rate of return, and there is no risk. Of course, you will barely beat inflation and you will forgo 100,000's of dollars worth in lost compounded interest, but it's your money.