Here Come the Shareholder Lawsuits Against Yahoo

The inevitable shareholder lawsuits have started to be filed against Yahoo for not accepting Microsoft’s bid. Yesterday, the Wayne County Employee’s Retirement System of Michigan, was the first to file suit. The retirement fund owns 13,600 shares. You can expect more shareholders to pile on board, especially if this thing drags out.In fact, that is not the only shareholder suit Yahoo is facing. On February 1, the day Microsoft made its recent offer, another shareholder lawsuit was filed against Yahoo in California for failing to accept Microsoft’s bid from the year before. They might want to amend that lawsuit to include Yahoo’s most recent rejection as well.

The more that Yahoo fights the merger, the more shareholder lawsuits will pop up. The reports in the media typically note how this is increasing the pressure on Yahoo. Nothing against Wayne County, but 13,600 shares is a tiny stake for an institutional investor. If bigger investors started suing, then the pressure would be noticeable. But big investors don’t sue, they vote their shares.

Yahoo And News Corp. Continue Marathon Discussions; Possible Bid To Counter Microsoft

At the start of the Microsoft/Yahoo saga we reported that News Corp. was scrambling to put together a bid to compete with Microsoft, but backed down because they were unable to find outside funding to make the deal lucrative enough (the sorry state of the debt markets contributed to the problem).

Yesterday Silicon Alley Insider reported that talks between the two were continuing. We’ve confirmed the rumor – Yahoo and News Corp. are in the middle of marathon discussions, and have more details.

According to our source, the deal structure would spin off Fox Interactive Media (the primary asset is MySpace, but IGN, Scout Media, Photobucket, Fox Sports, AmericanIdol.com, Flektor, Ksolo; plus investments in Hulu, Simply Hired and Snocap are also assets of FIM) into Yahoo, along with a big cash injection from News Corp. and an unnamed private equity fund. The total investment would be valued at around $15 billion.

Yahoo would be valued at somewhere around $50 billion before the transaction, north of Microsoft’s $44.6 billion bid. That would leave News Corp., plus the private equity group, with more than 20% of the combined entity. They’d be the largest single stockholder and effectively in control of the combined Yahoo/FIM entity and their nearly 150 billion monthly page views (which would be second only to Google).

The negotiating team is said to be trying to iron out the details in the next 48 hours, in time for Yahoo’s upcoming board meeting to review its options.

Microsoft is largely expected to increase their bid to the $35 range in the next couple of days based on Yahoo’s formal rejection of their first offer (effectively raising their bid to $50 billion). Any competing offer needs to be in that range or higher.

One major snag – it is widely believed that, even with a News Corp. deal, Yahoo would need to outsource search marketing to Google to make the numbers work. While Google is likely happy to do that deal, it’s unlikely U.S. regulatory agencies would approve it (we discuss this in detail here). Without the revenue boost and cost savings from outsourcing, the News Corp. bid may not pencil out.

Yahoo, of course, isn’t too worried about that right now. All they want is any kind of bona fide competing bid to at least get Microsoft to increase their offer. Yahoo execs are saying privately that they think a Microsoft acquisition is now fait accompli. Still, if News Corp. can somehow make a compelling offer (and getting a private equity group on board was a huge first step), Yahoo’s board may recommend the deal to stockholders.

It’s Official: Yahoo Rejects Microsoft Bid

Over to you, Microsoft.

Yahoo, confirming reports over the weekend that it would reject Microsoft’s unsolicited takeover bid, said early Monday that its board had found the $44.6 billion offer was “not in the best interest of Yahoo! and our stockholders.” In a short news release, Yahoo said the $31-per-share proposal “substantially undervalues” the Internet company, its brand and its investments. The formal rejection sets the stage for Microsoft to take its next step, and there are plenty of options. It could raise its offer, canvass Yahoo’s major shareholders for support or even wage a battle to replace Yahoo’s board.

Below, the full text of Yahoo’s bid rejection:

“Yahoo! Inc. (Nasdaq: YHOO), a leading global Internet company, today said the Yahoo! Board of Directors has carefully reviewed Microsoft’s unsolicited proposal with Yahoo!’s management team and financial and legal advisors and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders.

After careful evaluation, the Board believes that Microsoft’s proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders.

Goldman, Sachs & Co., Lehman Brothers and Moelis & Company are acting as financial advisors to Yahoo!. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Yahoo!, and Munger Tolles & Olson LLP is acting as counsel to the outside directors of Yahoo!.”

Go to Press Release via the Securities and Exchange Commission »