Academic

The WSJ Law Blog reported today that three cases have been filed in Delaware against Yahoo in connection with its efforts to drive away Microsoft and its unsolicited acquisition offer.  Specifically, shareholders want the court to determine that Yahoo's severance package for all employees (to be paid in event of termination within two years of merger) violates the Board's fiduciary duties under the enhanced scrutiny required by Unocal.  The complaint presents the Microsoft bid as noncoercive and reminds the court that it reflects a large premium.  In addition, remember that Microsoft has not launched a tender offer at this time but is considering a proxy fight.

Golden parachutes are generally an efficient way to align the interests of senior management with shareholders and allow each group to share in a profitable acquisition.  However, here the severance package extends to all employees so could be seen as more of a tool to raise the total cost of the acquisition without any benefit to the shareholders.  Although the plaintiffs in the case emphasize that the total cost of the severance package could add $1 to $3 billion to the purchase price (is that based on Microsoft firing everyone?), very large golden parachutes are not unheard of.  In Bill Carney's M&A textbook, he points out that in the RJR Nabisco buyout, golden parachutes to the top 3 executives amounted to $117,700,000 in a $25 billion buyout.  However, in 2007 dollars, that would amount to only $212 million in payouts on a $45 billion deal, the same size as the Microsoft-Yahoo deal. 

This is getting interesting. . . .