Yahoo’s Poison Pill Headed For Court
Last week’s letter war between Carl Icahn and Yahoo chairman Roy Bostock was just a preview of what’s to come. Ichan and company have challenged Yahoo’s employee retention plan (Icahn calls it a severance plan) in a Delaware court. Slated to go to trial in July, the legal matter will be settled in advance of the annual shareholders meeting on August 1.
The plan was enacted by Yahoo’s current board and justified as a way of keeping employees in uncertain times. Uncertain times appeared with Microsoft’s unsolicited takeover bid in January. In case of acquisition, and later, in case of a shareholder coup on the board, the plan goes into effect, guaranteeing certain benefits to employees should they lose their jobs or resign "for good reason."
While Yahoo claims the plan will ultimately cost a potential acquirer between $500 million and $800 million, Icahn puts that figure at $2.4 billion, which he also cites as an acquisition deterrent. In a letter last week, Icahn said if he and other shareholders take control of the board in August, the severance/retention plan would be dismantled.
But Yahoo’s current board added a provision with irreversible language that puts the plan into effect in the event a new board takes command, a move critics say is intended to deter a board takeover. The July trial will determine the legality of this move.
A trial is thought to be bad news for Yahoo. Though retention/severance plans are not uncommon when hostile takeovers are involved, a trial could force out information Yahoo may be withholding—like Icahn’s claim that Bostock’s compensation advisor told him the retention plan was "nuts"—and it would put the onus on Yahoo to prove that the plan is in the best interests of shareholders.
Yahoo has defended the plan in that respect by noting that keeping good employees is tantamount to the success of the company, acquisition or not.