Yahoo has poison pill defense at disposal
NEW YORK (Reuters) - Yahoo Inc. has some defense at its disposal should Microsoft Corp's unsolicited $44.6 billion bid turn hostile, as the Internet company adopted a poison pill in 2001.
Poison pills are defense mechanisms companies put in place to fend off unwanted takeovers, typically working by giving shareholders the ability to buy stock at a bargain price in the event a predator buys a stake above a certain level. That increases the number of shares of the target, diluting the percentage stake the predator holds and making a bid prohibitively expensive.
In March 2001, Yahoo adopted a "stockholder rights plan" under which if anyone buys 15 percent or more of its stock -- aside from an agreed bid -- shareholders have the right to buy extra shares, according to a filing at the time.
"Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our Board of Directors, our rights plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our Board of Directors regarding that acquisition," according to a Yahoo filing from 2007.
Earlier on Friday Microsoft said it had made a bid to acquire Yahoo for $31 a share, a 62 percent premium above the closing price of Yahoo on Thursday.
Yahoo said it would evaluate the bid.
Should it come to it, Microsoft would have limited success using a hostile offer to get control, said John Laide, product manager of FactSet SharkRepellent, which provides research on corporate activism and proxy fights to financial and legal clients.
However, Laide said that Microsoft may have chosen to time the offer now because it is ahead of Yahoo's expected annual meeting.
Yahoo does not allow shareholders to call special meetings, meaning that if Microsoft were to launch a proxy fight, it would have to do so at the annual meeting, Laide said.
In addition, as Yahoo does not have a classified board, Microsoft could get board control at one meeting if it were to launch a proxy fight for board seats, Laide said. Classified boards also are a takeover defense mechanism, allowing board members to serve for different term lengths rather than being re-elected annually.
Laide added that Yahoo has advance notice requirements if anyone did decide to nominate an alternate slate of directors, which begins on February 13 and ends March 14.
"We are not commenting beyond what is in the press release," said a representative for Yahoo in an e-mailed reply when asked about the poison pill.
Yahoo stock closed up $9.20 at $28.38 on Nasdaq. Microsoft stock finished down about $2.15 a share at about $30.45.
(Reporting by Megan Davies; editing by Carol Bishopric)
