Yahoo readied plan to reject Microsoft bid: papers

By Eric Auchard

SAN FRANCISCO (Reuters) - Yahoo Inc CEO Jerry Yang ordered up a draft press release rejecting a Microsoft Corp takeover bid months before January's unsolicited bid, company documents unsealed on Monday show.

Selective details from Yahoo board minutes and other confidential company documents in an investor suit, unsealed by a Delaware Chancery Court judge on Monday, paint a picture of how Yahoo has rebuffed Microsoft's courtship since early 2007.

Attorneys working on behalf of Yahoo investors aiming to force the company to drop its anti-takeover defenses -- opening the way to a Microsoft deal -- got the papers from the company and were allowed by a judge to make them public on Monday.

Minutes of Yahoo's board meeting last October said directors discussed "the likelihood that a third party would make an offer to purchase the company." Yang then obtained approval to reject any offer, drawing up a standby press release for an offer that only arrived late in January 2008. The suit alleges the "third party" was Microsoft.

While many events described in the shareholder complaint have enjoyed wide media coverage over the past year-and-a-half -- dating back to reports of Yahoo's decision to reject a Microsoft offer of $40 per share in January 2007 -- the new disclosures bring to light Yahoo's resistance to a merger.

In notes from a phone conversation between Yang and Microsoft Chief Executive Steve Ballmer held the day before Microsoft made public its takeover bid for Yahoo, Yang sought to delay Microsoft, but Ballmer said he would wait no longer.

"You don't lose anything by waiting a week," Yang is cited as saying, according to notes taken by an unidentified Yahoo participant and released in the shareholder suit on Monday.

Ballmer responded with words to the effect that "If you really don't want to sell the biz, then (I) don't want to wait" according to the previously undisclosed notes of the call. Ballmer also encouraged Yang to make a counterproposal and said Microsoft would forego making its bid public if Yahoo did so.

The records do not indicate whether Yahoo countered. Microsoft went public the following day, February 1, with its $31-per-share cash-and-stock offer, worth nearly $45 billion.

The suit seeks to paint Yang as a Microsoft-hater, but Yang's public statements and willingness to meet with Microsoft several times in recent months suggest he is seeking to wring a better price from Microsoft, not scotch a deal at all costs.

"We did not walk away from that proposal, Microsoft did," Yang told a hi-tech conference last week. "Microsoft is no longer interested in buying the company and we are talking about other things," he said, adding that "we are listening."

SUIT DEMANDS YAHOO DROP MERGER DEFENSES

The attorneys representing two Michigan pension funds are demanding that Yahoo drop barriers to a potential merger deal. They depict Yahoo as rushing to adopt an employee severance plan aimed at derailing a deal, according to their complaint.

Yahoo attorneys had previously asked the Delaware court to seal details from confidential company documents for fear they could be used against Yahoo in an upcoming proxy battle the company faces at its shareholder meeting set for late July.

When first released in mid-May, the amended shareholder complaint had crucial sections redacted. Chancery Court Judge William Chandler III on Monday ruled there was no reason to shield the Yahoo documents from investors and lifted the seal.