May 7, 2008
Yahoo's Deal with Google: A Takeover Defense?
Yahoo negotiated a strategic partnership with Google contingent on Yahoo staying independent (i.e. not selling to Microsoft). The deal lead Yang to demand a higher price, too high a price for Microsoft to pay. Shareholders of Yahoo can bring a derivative action on the deal. The argument: The deal is an anti-takeover device and subject to the "enhanced scrutiny" of the Unocal test. Evidence in support would be that the deal was with Google after the Microsoft bid and that Google was intent on blocking the bid. The problem: A target board can often meet the Unocal test requirements if it met and carefully considered the bid and had good arguments (that were not personal or quirky) for refusing to sell. Relief: The board would be personally liable for damages (which are huge and would test their D&O policy exclusions and limits). I doubt the court would order to Yahoo board to accept a lower price ($34) unaffected by the Google deal if Microsoft chooses to pay. The Court has the power to do so however.
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