The embarrassing shareholder class action lawsuit filed by the pensions funds for Detroit policemen and firemen as well as its city workers against Yahoo! spells out not just what it calls a web of cushy interlocking relationships and rich pay for the board members, but what it says is the real reason why Yahoo!'s board rejected Microsoft's $33 a share offer to buy the Internet giant.
Read on. It's a good one.
The lawsuit created headlines this week as it contained allegations that the board and Yahoo! chief executive Jerry Yang had enacted a brand new employee compensation plan that acted as a deal spoiler, as it could have encouraged employees to walk out en masse for "any good reason," including changes in job titles, with total payouts reaching as much as $2.4bn, including accelerated stock and stock option vesting for all employees, all sums an acquirer such as Microsoft would have to pay (the reason why Microsoft said it set aside an extra $1.5bn to do the deal).
Already, billionaire activist investor Carl Icahn, who has invested in Yahoo! in a bid to try to unseat its board, says Yahoo!'s new employee severance plan is an indication that Yahoo! is trying to "sabotage" a Microsoft deal.
Yahoo! responded to Icahn, stating in part: "We again note that (Icahn) has no credible plan to operate Yahoo!" and that eliminating Yahoo!'s severance plan would have a "destabilizing impact" on the company, adding that publicly putting a price tag on itself is "ill advised," according to the response.
Amidst the squabbling, Icahn on Friday urged Yahoo! to sell itself to Microsoft for $34.38 a share. The board won't like that deal price either, though.
The lawsuit says that the board directors who are not employees of Yahoo! have an incentive to reject Microsoft's $33 a share offer or any bid in that vicinity.
That's because it alleges that 80% of the value of the director's compensation in fiscal 2006 and over 70% in fiscal 2007 came in the form of stock options that had strike prices either at or below the $33 a share bid, so the offer would hardly make them any money.
Specifically, the suit says each director got 50,000 Yahoo! stock options with an exercise price of $36.75 in May 2005, 15,000 options with an exercise price of $32.92 in May 2006, and 15,000 options with an exercise price of $27.05 in June 2007.
So the board members' 2005 and 2006 options would be essentially worthless at a bid of $33 a share, and the 2007 options would be worth just $90,000 per director, the suit says.
However, the lawsuit goes on to say that the Yahoo! board "can be characterized by extravagant compensation and business relationships that have only benefited the top executives" and comprised of "friends" of Yang.
Yahoo! spokesman Brad Williams says: "We can't comment on these excerpts specifically," adding that "generally, many of the allegations in the complaint," he says, "are based on rumors and speculation by parties outside Yahoo! Inc. We believe the case is without merit."
Here's a rundown of the Yahoo! board members and their inter-relationships, according to the lawsuit. I am assisted in this coverage by ace Fox Business reporter Cristine Ambrose:
Roy J. Bostock: Has served on Yahoo!'s board since 2003 and became non-executive chairman of the board on January 31, 2008. Bostock received compensation worth almost $650,000 for serving as a Yahoo! director in fiscal 2006 and compensation worth $499,264 in fiscal 2007. As non-executive chairman, he receives an additional annual cash fee of $275,000. Bostock is also chairman of the board of Northwest Airlines, having succeeded co-Yahoo! director Gary Wilson in 2007.
Gary L. Wilson: A Yahoo! board member since November 2001. Wilson received compensation of over $482,000 for the fiscal year 2007, and about $588,000 for 2006 for serving as a Yahoo! board member. Wilson has numerous ties to Bostock. They were roommates at Duke University, are both trustees of Duke and serve on the boards of the NCAA Foundation and Northwest Airlines. The two also serve on the advisory board of NeoSpire Corp., a managed hosting company co-founded by Wilson's son, Derek Wilson, and with which Yahoo! does business.
Ronald W. Burkle: Has served as a member of the Yahoo! board since November 2001. He got paid $588,000 in fiscal 2006 and $482,046 in fiscal 2007 for serving as a Yahoo! board member. He also serves as well as board member of Occidental Petroleum Corp.
Eric Hippeau: Has served as a Yahoo! director since January 1996. Hippeau received compensation worth about $606,000 in fiscal 2006 and $496,674 in fiscal 2007 for serving as a Yahoo! board member. Between May 2000 and October 2007, Hippeau made almost $27 mn by exercising Yahoo! stock options and selling the related shares, according to data from Vickers. Hippeau has numerous business dealings with CEO Jerry Yang and Yahoo! Hippeau is managing partner of Softbank Capital ("Softbank") which holds a large amount in Yahoo!'s lucrative Asian operations: Yahoo! Japan and the parent of Alibaba.com. Yang is also on the board of Alibaba.com and Yahoo! Japan. He is a co-founder of the company and Chief Executive Officer.
Jerry Yang: Co-founder and chief executive, replaced Terry Semel, whose 2006 compensation package of $71.7 mn enraged shareholders who alleged he was being unreasonably rewarded while the company lost itself in the fast-growing advertising market. Yang gets a $1 token annual payment he has accepted for years, but that's because the Internet company which he co-founded already has made him a billionaire. Yang's stake in Yahoo! by some estimates is currently worth $1.5 bn. And Yang isn't the only Silicon Valley billionaire who work for a $1 salary each year. Apple CEO Steve Jobs and Google co-founders Larry Page and Sergey Brin all do, too.
Yang and Hippeau served together on a board of Ziff-Davis, of which Hippeau served as CEO and board of chairman from 1993 until at least 2000. In connection with Softbank's investments, Hippeau also serves on the board of directors of several companies that have business relationships with Yahoo!, including PureVideo, a network of video websites; Goodmail Systems, creator of a service for trusted e-mail delivery; and Beliefnet, a website devoted to spiritual beliefs.
Vyomesh Joshi: Served as a Yahoo! director since July 2005. Joshi received compensation worth about $600,000 for serving as a Yahoo! board member in fiscal 2006 and $520,000 in fiscal 2007. Joshi is executive vice president of Hewlett Packard, a company with which Yahoo! has a long-standing business relationship.
Arthur H. Kern: Joined the Yahoo! board in January 1996, shortly before Yahoo! became a publicly traded company. Kern received compensation of almost $500,000 for the fiscal year of 2007 and over $600,000 for fiscal 2006 for serving as a Yahoo! board member and committee chairman. Outsiders believe that most of Kern's wealth and success is linked to his affiliation with Yang. Kern has made some $113 mn by exercising Yahoo! stock options and then selling the related shares. In January 1996, Kern received an option to purchase 114,068 shares of Yahoo! stocks at an exercise price of $1 per share (not adjusted for subsequent stock splits). In addition, he received options to purchase 40,000 Yahoo! shares under the Company's 1996 director's stock option plan, once again not adjusted for splits
Robert A. Kotick: has been a director of Yahoo! since March 2003. Kotick received compensation $492,774 for the fiscal year of 2007 and over $629,000 for 2006 serving as a Yahoo! board member. Kotick is chairman and chief executive officer of Activision, a company in which Yahoo! does business. Activision makes video games.
Edward R, Kozel: has been a member of the Yahoo! board since October 2000. Kozel received compensation of $516,202 for the fiscal year 2007 an almost $620,000 for the fiscal year 2006 serving as a Yahoo! board member. Kozel is chief executive officer of Sky Ryder, a company with which Yahoo! does business. He is a non-employee director of two entities in which Yahoo! does business: Network Appliance and Reuters Group. Yang and Kozel have been involved in multiple business ventures together for several years, and have served together on the boards of Cisco, American Internet, Pipelinks and Combinet. Yang and Kozel also both served in an executive capacity for Growth Networks.
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But in reply to above - Smithy, There is no more Justice Department after Monica Goodling's hirings and firings. But more importantly - as if there were a DOJ that wasn't limp, indeed, they could possibly stop TXU from merging on Wall Street.
Google is already testing ads on Yahoo. The ads make google.
I'm not sure why you find google 'communist' - if you do your research, the NSA funded google from the beginning at Stanford, then again, the NSA funds a LOT of work at Stanford.
Google in my view salvaged all the pre year 2000 'Click the moving monkey ads' and consolidated it all into a very tightly controlled search engine/advertising network.
Yahoo COULD probably do 'ok' if it maxed out its advertising as Google does.
Microsoft started riding the coattails of Google a couple years back, I pay into both myself. Google still offers the best results, although I'm NEVER happy paying over $1 for a 'click' someone, anyone happens to make on my link. To that, I think Google's REAL value to people is far far far less than the company makes off with from their customers.
I've been using computers on a daily basis since the mid 1970's as a child, at that time it was mainframe granted, and networking, ArpaNet was barely past hotel meeting arrangements via Request For Comments, however witnessing trends, and how the micro streamlined into Microsoft and *nix, then all turned into thin clients. I used Google with great happiness when it came out, it simply worked well. I MAY use Yahoo search occasionally, perhaps if I don't want to have my search added to my Google search analytics pegged to my IP, that's about it. Maybe if I can't find something via Google, I'll try Yahoo, rarely anything better comes up. So, Yahoo and everyone else in my view takes back seat to Google for a search engine.
Yahoo is dead in that regards, but it lives on with - as you said - email users such as yourself, who rightfully so perhaps don't want to be cross-marketed ads by using gmail.
Yahoo has REAL networks of users - that is real. Yahoo doesn't make #1 for search engine portal though. Yahoo auctions ? not sure about, Yahoo chat ? my god, I checked that out once, I'm STILL in therapy from the trauma incurred- it's that bad and that was JUST a political chat room.
I think Google wants to either USE Yahoo to run its ads - come on, Google even wants your grandmothers website to run ads - and they probably already have her. Google makes it VERY easy for common end users to become billboard space for their advertising. I truly believe this is Google's interest in Yahoo.
So, unless Yahoo gets agressive and follows Microsoft in hopes of trying to cash in on this distributed ad network model Google has made such a success ? They aren't going anywhere.
In that Google already has started running ads through Yahoo, that's my basis for intuiting that Google is exploring Yahoo. Microsoft's ONLY interest in my book HAS to be the same interest, the wanton of Yahoo's existing real user base, loyal or just there for free email or file sharing, to extend MS's ad network.
All in all I still think it's kind of silly, all you have to do is start paying Google or Microsoft AS an advertiser for you to realize how askew the pricing really is.
If I owned Google stock, my god, you know each time you click an ad on Google ? they're making sometimes OVER $1 ? 250 Clicks ad up - and that's virtually funny money. On the flip side, I have to PAY Google for when people click my ads, so if I have an angry consumer out there clicking away ? It really can cost me hundreds a month. Sure Google has means to watch high click aggregates on an IP, but you know ? they sure never report what those limit are.
Myself, I could care less about who buys Yahoo, if anything, they somewhat lose for not attempting to make the best use of their own company. What kind of an exit strategy is it to be bought ?
June 11, 2008 at 2:48 pm
Smithy
nathania : "I don’t see how google has any reason to buy yahoo"
If Google doesn't have any reason to buy Yahoo, how come Google CEO, Eric Schmidt, made a secret call to Yahoo CEO, Jerry Yang, and suggested they crave up the search market, in a clear attempt to monolpolize the search market snd deny consumers any choice?
In fact the DOJ is looking into this outrageous act by the Google CEO, even as we speak.
June 9, 2008 at 12:27 am
nathania
I don't see how google has any reason to buy yahoo. They dominate the search market share (both search queries and search advertising). Plus page views for all of google sites surpassed yahoo sites last month. I don't see that trend reversing.
I think ms. Macdonald's insight into the financial ties of yahoo's board speaks. Volumes about their resistance to microsoft's offer.
Having said that, I think the cultures of microsoft's and yahoo make them a poor match. And it continues to baffle me why traders and analysts want to see this deal go down. While their might be an initial monetary boost, I over time I think it would give google even more market share. Carl ICANN may make a pretty penny from his proxy board but it's google's page and bring that will be laughing all the way to the bank.
June 7, 2008 at 10:28 am
steveo
Helping America steel is big bid the market rush is marking the way for steel buying benazza as the money is right and we must mack use of majeure bulk hails in temptation for to sell old dollar and mack it new again from recognizing value derelict cars and any other mess after bad storm season for steel commodities will help big play on high flux in world markets developmentation is waiting for the leader USA to start the trend ! for the right stuff to work at a time when in Bulk for to help is help both way's.
June 7, 2008 at 9:21 am
John
Google can't buy Yahoo! due to anti-trust concerns.
June 7, 2008 at 4:19 am
cbk
Wow ! these people are just one big mafia ! no wonder they wont sell --the sharholders be damned ! i would love to sit on the compensation committe and divy -up the compensation pie!!!
June 6, 2008 at 8:40 pm
aboutthis blog
Elizabeth MacDonald is the stocks editor for Fox Business Network. She is recognized as one of the top prize-winning business journalists in the country, and has received 14 awards, including the top prize in business journalism, the Gerald Loeb Award for Distinguished Business Journalism, and the Newswomen's Club of New York Front Page Award for Excellence in Investigative Journalism.
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DrDetroit
Note to administrator for comments: Reply functionality would be welcomed. But in reply to above - Smithy, There is no more Justice Department after Monica Goodling's hirings and firings. But more importantly - as if there were a DOJ that wasn't limp, indeed, they could possibly stop TXU from merging on Wall Street. Google is already testing ads on Yahoo. The ads make google. I'm not sure why you find google 'communist' - if you do your research, the NSA funded google from the beginning at Stanford, then again, the NSA funds a LOT of work at Stanford. Google in my view salvaged all the pre year 2000 'Click the moving monkey ads' and consolidated it all into a very tightly controlled search engine/advertising network. Yahoo COULD probably do 'ok' if it maxed out its advertising as Google does. Microsoft started riding the coattails of Google a couple years back, I pay into both myself. Google still offers the best results, although I'm NEVER happy paying over $1 for a 'click' someone, anyone happens to make on my link. To that, I think Google's REAL value to people is far far far less than the company makes off with from their customers. I've been using computers on a daily basis since the mid 1970's as a child, at that time it was mainframe granted, and networking, ArpaNet was barely past hotel meeting arrangements via Request For Comments, however witnessing trends, and how the micro streamlined into Microsoft and *nix, then all turned into thin clients. I used Google with great happiness when it came out, it simply worked well. I MAY use Yahoo search occasionally, perhaps if I don't want to have my search added to my Google search analytics pegged to my IP, that's about it. Maybe if I can't find something via Google, I'll try Yahoo, rarely anything better comes up. So, Yahoo and everyone else in my view takes back seat to Google for a search engine. Yahoo is dead in that regards, but it lives on with - as you said - email users such as yourself, who rightfully so perhaps don't want to be cross-marketed ads by using gmail. Yahoo has REAL networks of users - that is real. Yahoo doesn't make #1 for search engine portal though. Yahoo auctions ? not sure about, Yahoo chat ? my god, I checked that out once, I'm STILL in therapy from the trauma incurred- it's that bad and that was JUST a political chat room. I think Google wants to either USE Yahoo to run its ads - come on, Google even wants your grandmothers website to run ads - and they probably already have her. Google makes it VERY easy for common end users to become billboard space for their advertising. I truly believe this is Google's interest in Yahoo. So, unless Yahoo gets agressive and follows Microsoft in hopes of trying to cash in on this distributed ad network model Google has made such a success ? They aren't going anywhere. In that Google already has started running ads through Yahoo, that's my basis for intuiting that Google is exploring Yahoo. Microsoft's ONLY interest in my book HAS to be the same interest, the wanton of Yahoo's existing real user base, loyal or just there for free email or file sharing, to extend MS's ad network. All in all I still think it's kind of silly, all you have to do is start paying Google or Microsoft AS an advertiser for you to realize how askew the pricing really is. If I owned Google stock, my god, you know each time you click an ad on Google ? they're making sometimes OVER $1 ? 250 Clicks ad up - and that's virtually funny money. On the flip side, I have to PAY Google for when people click my ads, so if I have an angry consumer out there clicking away ? It really can cost me hundreds a month. Sure Google has means to watch high click aggregates on an IP, but you know ? they sure never report what those limit are. Myself, I could care less about who buys Yahoo, if anything, they somewhat lose for not attempting to make the best use of their own company. What kind of an exit strategy is it to be bought ?
Smithy
nathania : "I don’t see how google has any reason to buy yahoo" If Google doesn't have any reason to buy Yahoo, how come Google CEO, Eric Schmidt, made a secret call to Yahoo CEO, Jerry Yang, and suggested they crave up the search market, in a clear attempt to monolpolize the search market snd deny consumers any choice? In fact the DOJ is looking into this outrageous act by the Google CEO, even as we speak.
nathania
I don't see how google has any reason to buy yahoo. They dominate the search market share (both search queries and search advertising). Plus page views for all of google sites surpassed yahoo sites last month. I don't see that trend reversing. I think ms. Macdonald's insight into the financial ties of yahoo's board speaks. Volumes about their resistance to microsoft's offer. Having said that, I think the cultures of microsoft's and yahoo make them a poor match. And it continues to baffle me why traders and analysts want to see this deal go down. While their might be an initial monetary boost, I over time I think it would give google even more market share. Carl ICANN may make a pretty penny from his proxy board but it's google's page and bring that will be laughing all the way to the bank.
steveo
Helping America steel is big bid the market rush is marking the way for steel buying benazza as the money is right and we must mack use of majeure bulk hails in temptation for to sell old dollar and mack it new again from recognizing value derelict cars and any other mess after bad storm season for steel commodities will help big play on high flux in world markets developmentation is waiting for the leader USA to start the trend ! for the right stuff to work at a time when in Bulk for to help is help both way's.
John
Google can't buy Yahoo! due to anti-trust concerns.
cbk
Wow ! these people are just one big mafia ! no wonder they wont sell --the sharholders be damned ! i would love to sit on the compensation committe and divy -up the compensation pie!!!