M&A

With Gates at the Gates, Yahoo Prepares

Web portal company creates severance plans for execs as Microsoft reviews how to continue the assault.
Roy HarrisFebruary 20, 2008

Yahoo Inc. established severance plans for top executives and full-time employees as it continues to design a battle plan against a $40-billion-plus hostile bid from Microsoft Corp.

In a Securities and Exchange Commission filing, the Web portal company said that workers losing their jobs without cause, or quitting “for good reason,” as Yahoo defines it, would keep getting paid salary and medical benefits for 4 to 24 months, while also being reimbursed for outplacement services for two years, according to the Associated Press. Vesting of stock options would also be accelerated for departing employees.

The severance plans could raise the cost to Microsft of integrating Yahoo, and might it more difficult for Microsoft to move Yahoo employees from Sunnyvale, Calif., to Redmond, Wash. “It makes it more expensive for a potential acquirer to come in and cut costs. It makes it less attractive to Microsoft,” Laura Martin, an analyst at New York-based Soleil Securities, told Bloomberg News. She recommends holding onto Yahoo shares, but doesn’t own any.

Yahoo CEO Jerry Yang told employees in an e-mail that its new severance plans “shouldn’t be construed as any indication that a change in control might or might not take place,” the wire service reported.

While rejecting the Microsoft offer because it “substantially undervalues” Yahoo, the target has said that it is “carefully and thoroughly evaluating all of the company’s strategic alternatives.”

For its part, Microsoft has said it will offer retention packages to Yahoo engineers and other key staffers, including some executives, although it hasn’t said how many jobs it might cut, according to the AP. The wire service said it had been told in an interview with Microsoft Chairman Bill Gates on Monday that the software giant was not talking to Yahoo about making a higher offer.

Meanwhile, as investors waited for some next step from Microsoft, it did hire proxy solicitation group Innisfree M&A Inc. to help plan for the possible ouster of Yahoo’s board members, all up for re-election this year, the AP said. The service added that a source close to the Innisfree deal believed Microsoft might be prepared to spend between $20 million and $30 million to do so.

While Microsoft has given no signs that it might raise the $31-a-share bid, the AP quoted an anonymous source who it said was familiar with earlier Microsoft-Yahoo talks as saying that Microsoft was willing to pay at least $40 a share in 2007, in a deal never made public.