Yahoo shareholder launches class action

A Yahoo shareholder has launched a class-action lawsuit against the online giant, alleging that a ban on crosstalk for firms interested in acquiring the company is anti-competitive, and harms shareholders.

"The No Cross Talk Provision constitutes an unreasonable anti-takeover device, designed to entrench and favour [Yahoo co-founder Jerry] Yang and the current board," M&C Partners III, the case's plaintiff, wrote in a suit obtained by ZDNet Australia's sister site CNET, and filed with the Delaware Chancery Court last week. "It tilts the playing field unreasonably in favour of Yang, who is working to attract investors who will take a large minority position in Yahoo (less than 20 per cent, but enough to effectively block any future proxy contest), and who can be expected to support Yang's desire to retain a disproportionate influence over Yahoo's business and affairs."

Reports of Yahoo forcing potential suitors to agree to the provision cropped up in October. The clause effectively bans companies from working together to bid for Yahoo. When the requirement was first made public, it was viewed as a simple way for Yahoo to increase competition as it pondered offers.

But M&C sees it another way. The shareholder acknowledged that in some cases, such a provision can be useful, but it said that Yahoo "is the classic 'difficult sell,'" and, therefore, should attempt to give buyers any opportunity to present the company with a solid deal.

If Yahoo is a "difficult sell", it appears that many companies don't seem to notice. Over the last several months, a host of investment firms, including Silver Lake Partners and Bain Capital, have reportedly shown interest in acquiring all or part of Yahoo. Tech giant Microsoft and China's Alibaba Group are also reportedly considering buying a piece of the company.

M&C's lawsuit is just the latest shot that Yahoo has taken from a shareholder. In September, following the company's ouster of former CEO Carol Bartz, major Yahoo shareholder Third Point spoke out about the online company's failings.

"From the failed Microsoft sale negotiations to a subsequent bungled and disappointing search deal with Microsoft, through a series of misguided CEO selections and, most recently, the Alipay debacle, this board's failures have destroyed value for all Yahoo stakeholders," Third Point CEO Daniel Loeb wrote in a letter to Yahoo's board. "Against this background, it is evident that merely replacing the company's CEO — yet again — will not be enough to alter the direction of the company. Instead, a reconstituted board with new directors who will bring fresh eyes, relevant industry expertise and increased investor alignment to the table is immediately necessary."

M&C appears to agree. Along with suing Yahoo, M&C included the company's board members in its lawsuit.

For its part, Yahoo hasn't immediately responded to requests for comment on the lawsuit. But if the company loses, it will be forced to eliminate the crosstalk provision, rescind "any ensuing unfair transaction" that results from the provision and resist any takeover requests until it "implements a procedure or process to obtain the highest possible price for shareholders."

Via CNET