All Things Digital

Yahoo (YHOO) caught a lucky break yesterday when a Delaware Chancery Court judge denied a request by company shareholders to expedite a trial on whether to invalidate Yahoo’s controversial employee severance plans.

The plaintiffs, who claim the severance plan makes any takeover of the company prohibitively expensive, had requested a trial before Yahoo’s annual shareholders meeting on Aug. 1. They argued that the plan, and Yahoo’s recently announced advertising deal with Google (GOOG), might unfairly bias Yahoo shareholders against efforts to replace the company’s board.

But the judge, who complained of the “media maelstrom” shareholders have created around the issue, didn’t buy it. And rather than expediting the case, he said he planned to set a “prompt” schedule for hearing Yahoo’s motion to dismiss it.

As I said, lucky break.

Photo of Judge Wapner from “The People’s Court.”

As predictable as the call and response between two chattering squirrel monkeys, the recent dialogue between Yahoo (YHOO) and Carl Icahn. And about as elevated.

In a speech to reporters at the New York Financial Writers’ Association annual awards dinner last night, the billionaire investor–clearly irked by Yahoo’s latest SEC filing–let loose on the company, accusing it of “sinking to a new low.” Yahoo’s severance plan, which Icahn argues was designed to make any takeover of the company prohibitively expensive, is obscene, said the investor. It’s “an insult to our intelligence … a complete, total … I don’t want to use bad words … a travesty,” he added. For the people Microsoft (MSFT) wants to keep, Icahn maintained, the severance plan “will make it easier for them to leave.” And then, just in case anyone was still unclear on Icahn’s view of the company’s leadership, he offered up the following brief performance review:

Yahoo has done terribly. The board has done an abysmal job.”

Mess with the bull, you get the horns. And if Yahoo’s board persists in messing with Icahn, it may get them in the form of a lawsuit. “If they continue with this line,” the investor told Reuters, “I believe they (the board) may be personally liable.”

Shareholders suing Yahoo’s (YHOO) board of directors for its alleged mishandling of the Microsoft (MSFT) buyout offer may find their efforts to pull the company’s controversial severance plan something of a fool’s errand. Because according to a new company filing, their chances of forcing Yahoo to scrap the plan are about as good as their chances of forcing CEO Jerry Yang to use capital letters in his all-hands memos, just like a big boy. Which is to say, middling to lousy at best.

In an SEC filing late today, the company noted that it cannot simply terminate the severance plan, as some shareholders, and one in particular, would like. From Yahoo’s filing:

Can the board simply terminate or cancel the plan now as suggested by Mr. Icahn?
No. Under the terms of the plan, it cannot be terminated once a person has publicly announced the intention to take an action, which if consummated, would constitute a change in control until one month following the abandonment of the potential change in control. The actions covered include, among others, the announcement by any person of an intention to acquire the company as well as a proxy contest to take over a majority or more of the board (such as that announced by Mr. Icahn). Accordingly, the plan can’t currently be terminated or canceled. The plan can be terminated one month following the abandonment of the actions creating a potential change in control.”

Suffice to say, the litigious among Yahoo’s shareholders are not at all pleased with this particular feature of the plan and have filed a motion requesting a trial to remove it before Yahoo’s annual meeting in August. “A prompt trial on the validity of the severance plans is now essential and appropriate,” they argued in a brief filed today, “not least because Yahoo’s board disabled itself from rescinding the severance plans during the pendency of a proxy fight, even if doing so is essential to realizing a favorable deal, and because Icahn’s slate is barred from rescinding the severance plans if it prevails in its proxy contest.”

Have you heard? Carl Icahn is unhappy with Yahoo’s current leadership and the manner in which it handled Microsoft’s unsolicited acquisition offer. In a stink-bomb of a letter to Roy Bostock, the chairman of Yahoo’s board of directors, Icahn accused Yahoo (YHOO) of acting against its shareholders’ best interests by making it practically impossible for Microsoft (MSFT) to stay at the bargaining table.

“Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies,” Icahn wrote, referring to Yahoo’s highly unusual severance plan that would have rewarded employees who left the company after a change in ownership. “I never believed that anyone would actually create and activate one in real life. I guess I never knew about Yang and the Yahoo Board.”

Doomsday machines? James Bond movies? Did Yahoo appoint Richard Kiel to its board and not tell anyone?

Oh, and by the way, the name’s Icahn … Carl Icahn.

His letter follows.

Read more »

Turns out Jerry Yang isn’t the only Yahoo CEO to reject a buyout offer from Microsoft. His predecessor Terry Semel did as well. According to a complaint unsealed as part of a proposed class-action suit against Yahoo’s directors today, Microsoft (MSFT) offered $40 a share for Yahoo (YHOO) in January 2007. And the company refused it, just as it would later refuse the $33-per-share bid that followed a year later.

But that’s just a sidenote to the larger issues in the suit, which charges Yahoo’s directors with breach of fiduciary duty for not just rejecting Microsoft’s proposed deal, but also for going to great lengths to make it an unappealing acquisition target. “Due to their personal interests in maintaining Yahoo’s independence and their strong antipathy to Microsoft, [Yahoo co-founders Jerry Yang and David Filo] failed to consider and respond in good faith to the acquisition offers by Microsoft to the detriment of Yahoo and its shareholders,” the complaint argues. The two “used the threat of pursuing measures that make Yahoo an unattractive acquisition target, including the prospect of Yahoo abandoning its long-term business strategy in favor of a tie-up with Google that would make a Microsoft acquisition a regulatory and litigation quagmire, as an improper means to thwart Microsoft’s advances.” Moreover, “Yang convinced the board to adopt change-in-control employee severance plans that impose tremendous costs and risk for an acquirer, throwing sand in the gears of Microsoft’s plans for a smooth integration. These highly unusual plans reward employees with rich benefits if they quit and claim a constructive termination in the aftermath of a change in control.”

The plans at issue here, which would have cost Yahoo $1.5 billion, provided 100% equity acceleration for all employees. It is “a bizarre outcome if people who stick around make off worse financially than people who are laid off,” one Yahoo VP said of the plan. The company’s compensation consultant had a better word for it: “nuts.”

What was it Yang said during his interview at D6 last week? “I will probably never be a CEO again?”

Hey, he said it, not I.

In a story first reported by BoomTown’s Kara Swisher, AOL announced its now semi-annual winter holiday layoffs this morning, disclosing plans to sack about 20% of its total work force–2,000 of its 10,000 global employees. Like those that have preceded it, the latest iteration of the plan to shift AOL’s business model from a subscription-based ISP to an advertising-supported Web company also involves shifting employees from AOL’s offices to the bread line.

In a letter to employees, AOL CEO Randy Falco thanked AOL “colleagues” affected by the reduction, promising to smooth their transition to unemployment with a bit of career counseling and “what we believe are generous severance packages.” Generous, in this case, being a handy euphemism for two months salary and the inescapable financial stress that goes along with it, as well as the always unquantifiable “thanks and respect for their contributions to the company.”

So, 2,000 AOLers felled by normal involuntary attrition. This in addition to the 5,000 that were released into the wild last year. To what end? Says Falco, “So where is this taking AOL? Put simply, my vision for AOL is to build the largest and most sophisticated global advertising network while we grow the size and engagement of our worldwide audience. We’re only a year and a month into our transformation, and the turnaround has been dramatic. We’re now in a position to win as an advertising-supported business. We have a bright future as a company if we can execute on this vision.”

Dell must have appreciated the lackluster financial quarters it had under former chief executive Kevin Rollins a lot more than it let on, because it gave him a hell of a parting gift. In a filing yesterday with the Securities and Exchange Commission, Dell said it will pay Rollins $48.5 million for his now-expired stock options. This just six months after he was shown the door in the wake of a string of losses and an intensifying SEC investigation into the company’s financial practices.

Not bad for Rollins, who already pocketed $5 million in severance when he left Dell.