I retired from personal blogging in July 2008.
But you can find me over at http://blog.xero.com.
I’ve spent a lot of time on Shareholders agreements and constitutions and it always feels like ‘this is a lot of time and a lot of money for something we probably will never again read once it’s done‘.
But watching Yahoo’s defensive maneuvering against a potential hostile takeover is a fascinating example of using company and shareholder structures strategically.
I’d never heard of a poison pill before. Also interesting the timing of the Microsoft announcement and how they may seek to capture board seats.
And now the Yahoo severance plans.
Fascinating business lessons being played out.
blog
If I was a Yahoo shareholder, I’d be very angry. Existing staff contracts will already cover termination, and set the ground rules when people accepted their jobs at Yahoo. So what’s this about? Protecting the incumbent management. MS (or any other bidder) will discount the cost of the poison pill in any final price, and Yahoo shareholders will pay the bill..
If you invite in external shareholders, you have to treat them right, and this is wrong. Yang and Co should get the sack for this stunt.
stunts like this are common practice in american listed corporates during unsolicited takeovers
but that said i agree with jim that it is not appropriate practice
Poison pills are a good threat, but I was told that they often don’t work in practice. Their legality is still a little on the edge, and a decent proxy fight will see the victor take the spoils. At the end of the day if everyone ends up with a smile on their face, then the deal will happen.
As Jim says, I was taught that a poison pill should reduce the value of a company as it reduces the likelihood of a change of control event, however in practice they are ignored, because a good deal will happen regardless.
I too am spending far too much time on shareholders agreements and the like. They really slow things up and to me they are only useful when things go wrong, or if you are a lawyer looking for revenue.
Rod,
In relation to your post, the NY Times has great coverage here on the possible defensive/offensive tactics that can be used in relation to what is allowed under US law, and also keeping in mind that with the upcoming shareholder meeting and the high possibility that MS will launch a proxy contest, Yahoo’s execs have to be careful about how extreme their defensive measures are.
http://dealbook.blogs.nytimes.com/2008/02/20/yahoo-plays-it-safe-for-now/
“Many of the above steps, if too extreme, will lead to public censure by its own stockholders. Given the upcoming proxy contest and shareholder choice, this provides little room for Yahoo to maneuver.”
And this:
http://dealbook.blogs.nytimes.com/2008/02/19/possible-proxy-fight-puts-yahoo-board-in-focus/
“Microsoft, whose unsolicited bid for Yahoo has been rejected, plans to authorize a proxy contest with Yahoo this week. If Yahoo doesn’t quickly come to the table, Microsoft would then nominate a rival slate of directors and try to persuade Yahoo’s shareholders to vote out the entire 10-member board.
Among the directors in Microsoft’s sights would be Mr. Burkle; Jerry Yang, Yahoo’s chief executive and co-founder; and Roy Bostock, the chairman of Northwest Airlines.”
The risk of a shareholding relationship going wrong to the extent of having to dust off that shareholders’ agreement is no doubt small, although in fast growing capital hungry IP based companies the risk is not insignificant. (Actually, it can be quite helpful to such parties to have to sit down and consider what should happen in different scenarios).
However, the cost of that small risk manifesting itself can be massive (particularly if valuable IP ownership hangs in the balance). So, its a cost/benefit/risk trade-off as always but I can hear my litigation colleagues licking their lips at the thought of undocumented shareholding arrangements falling apart.
Poison pills aren’t nearly as common here in NZ as in the US but you do need to consider the possibility (particularly if relying on the ability to exercise a pre-emptive right or right of first/last refusal in the event of your other shareholder selling out). Having been on both sides of their use - they can be pretty effective and there is little or no NZ law which prevents their use.
[...] lowered the value to shareholders of Yahoo (although as I and others commented on Rod’s blog, poison pills are a relatively empty threat), opening those Directors up to liability from shareholders that saw potential money [...]