Legal News

Yahoo Shareholders Sue Board for Golden Parachutes

By Dan Slater

The policy behind a golden parachute clause — a term of employment the Law Blog does not enjoy — goes something like this. If, in the event of a change-in-control, high-level execs are guaranteed hefty severance payments, then the specter of job-loss won’t figure as much in their decision-making, rendering their interests more closely aligned with those of shareholders.

According to a lawsuit filed last week by two Yahoo shareholders (both pension plans in Detroit), the Yahoo board has recently used golden parachutes for a different, improper reason: to make the proposed acquisition by Microsoft more unattractive.

The complaint, filed in the Delaware Court of Chancery by Bernstein Litowitz’s Mark Lebovitch and Brett Middleton, alleges, among other claims, that Yahoo recently put in place a severance plan that offers packages — worth up to two years’ salary for top exeuctives and a minimum of four months to all other employees — to all of Yahoo’s employees. (Find the complaint and accompanying motions here.) Here’s an excerpt from the complaint:

The creation of the Severance Plans are part of an effort to thwart Microsoft. They cannot be reconciled with Yahoo’s admission, on January 29, 2008, that it had a bloated workforce and would be cutting 1,000 jobs, or 7.1 percent of its workforce. . . . It has been estimated by a market commentator that the Severance Plan would cost an acquirer at least $1 billion, and up to $3 [billion] . . . .

The Law Blog placed calls to the lawyers at Munger Tolles who are representing the Yahoo board, but we haven’t heard back.

In the meantime, let’s hear from the corporations students out there: Is it legal for the Yahoo board to legally use golden parachutes as a takeover defense?

Full post as published by Law Blog - WSJ.com on February 26, 2008 (boomark / email).