Detroit funds sue Yahoo over Microsoft rebuff

By Gina Keating

LOS ANGELES (Reuters) - Two Detroit pension funds sued Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) and its board on Friday for rejecting Microsoft Corp's (MSFT.O: Quote, Profile, Research, Stock Buzz) unsolicited $41.2 billion offer in a sign of growing shareholder frustration with the online search and media company.

The proposed class action, filed by veteran shareholder litigation firm Bernstein Litowitz Berger & Grossman, takes Yahoo directors to task for spurning the February 1 offer and "pursuing all manner of value-destructive third-party deals."

The two plaintiffs, Detroit's Police and Fire Retirement System and General Retirement System, are concerned about news reports of a "potential imminent deal" sought by the Yahoo board with media conglomerate News Corp (NWSa.N: Quote, Profile, Research, Stock Buzz) or Time Warner Inc's (TWX.N: Quote, Profile, Research, Stock Buzz) AOL that would not require a shareholder vote.

The plaintiffs asked a Delaware Chancery Court to block the Yahoo board from completing any such transaction with those companies, to force it to reconsider Microsoft's offer, and to block it from implementing defensive measures that would render the company unattractive to potential buyers.

A Yahoo spokeswoman said the company had no comment.

Lawsuits by Yahoo shareholders have multiplied in the wake of Yahoo's February 11 refusal to entertain the offer, which represented a 62 percent premium over Yahoo's share price.

Yahoo said at the time the bid substantially undervalues the company, failing to take into account its 500 million users worldwide, investments in its advertising platform and lucrative overseas holdings. Microsoft has yet to show signs it would raise its offer.

Before the offer, Yahoo's share price had dropped 46 percent since October as it struggled to compete with Internet search leader Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz).