In Other News, Yahoo Settles Shareholder Lawsuit on Severance Plans

Posted by: Rob Hof on December 10, 2008

As if Yahoo wasn’t doing enough today with the announced layoff of 1,500 people, it also just settled a shareholder lawsuit over controversial severance plans it adopted shortly after Microsoft’s unsolicited bid to buy the company. That plan plan gave all 13,800 Yahoo employees at the time cash and accelerated stock grants in the event of a takeover and a change in their jobs. The cost of the two plans, one for U.S. employees and one for overseas staff, was estimated by a consultant Yahoo hired to be up to $2.1 billion. It turned out it was likely to be far less than that, but the cost may have been a factor in Microsoft getting cold feet on its Yahoo bid.

Before I get to the details, let’s address the big question the settlement raises: Does it mean a deal with Microsoft or anyone else is imminent? Yahoo insists not. “This wasn’t done in anticipation of any deal,” says one person close to the details at Yahoo. Why, then? to avoid a long and costly proceeding.

However, it’s also true that the amendments to the severance plan make Yahoo less unattractive, as it were, to Microsoft if it’s still inclined to return to the negotiating table. And as you’ll see in the details, one piece of the new severance plan indicates a clear preference for the sale of Yahoo’s search business.

You can view the hairy details of the lawsuit, the settlement, and a teleconference with the judge at the site of the plaintiffs’ attorney, Bernstein Litowitz Berger & Grossmann. And the SEC filing is here. But here’s the quick summary:

* The period between the time when there’s a “change in control”—usually an acquisition by another company—and when an employee leaves for “good reason” gets reduced from two years to one year.

* “Good reason,” which was very broadly defined in the original plans, now means a material reduction in job duties or pay or a transfer more than 35 miles away.

* Yahoo’s board can further change the severance plans in the event of a potential change in control, which they couldn’t do before.

* The election of a new board won’t constitute a change in control that would trigger the plans. Before, it did. Nor, specifically, will a sale of the company’s search business.

Given that that last phrase was nowhere to be found in the original severance plans—and wouldn’t seem to constitute a change in control anyway—the presence of that phrase is telling. But it’s unclear whether that means a search deal—presumably with Microsoft, which proposed two that were rejected earlier this year—is more likely. It could simply be a relatively meaningless concession to the shareholders who just want to be sure a search deal wouldn’t trigger severance payments—which will not change under the settlement.

In other words, Yahoo’s future remains as cloudy as ever.

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Reader Comments

Tejus Trivedi

December 11, 2008 10:13 AM

We should expect a sale of Yahoo’s search business soon. The changes to the severance plan have conveniently addressed exactly such a situation i.e a sale of Yahoo’s search business. Yahoo has managed to kill 2 birds with one stone- settle a pending lawsuit as well as make itself more attractive to a potential offer.
www.tejustrivedi.blogspot.com

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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