Judge OKs settlement in Yahoo shareholder suit

A judge approved a settlement in a lawsuit over Yahoo's severance plan.

Removing one barrier to a potential Microsoft acquisition of Yahoo, a judge approved a settlement that will roll back a Yahoo employee severance plan that critics described as a poison pill.

On Friday, Judge William Chandler III of the Delaware Court of Chancery approved the settlement.

The severance plan was implemented by Yahoo's former leaders and made it easy for employees to leave the company in the event of an acquisition and receive generous compensation. Some investors, including the vocal Carl Icahn, described the plan as a poison pill because he argued that the severance payouts would be so expensive that no company would want to acquire Yahoo.

Several shareholder groups including large pension funds such as the City of Detroit retirement fund subsequently filed lawsuits charging Yahoo board members and executives with foiling a Microsoft takeover to protect personal interests to the detriment of shareholders. Many lawsuits were consolidated into the complaint with the Delaware Court of Chancery.

The settlement, first submitted to the court in December, narrows the reasons why employees can quit and receive the severance, removing some of the incentives for them to leave the company in the event of a Yahoo acquisition. Yahoo said it's happy with the deal.

"We are very pleased that the settlement was approved because we believe it is in the best interests of the company and our shareholders," the company said in a statement.

The settlement could make Yahoo easier to sell, the judge said. "I conclude that the settlement, obtained by plaintiffs, amounted to a substantial benefit to Yahoo's shareholders because the key terms of the settlement made it less expensive to sell Yahoo, making the company a more attractive target to potential suitors," the judge wrote in his ruling.

The severance plan probably wasn't the only reason the Microsoft deal didn't go through last year, said Matt Rosoff, an analyst with Directions on Microsoft. "It wasn't a deal breaker but it was an indication that Yahoo didn't want to be acquired," he said. The settlement "is an indication that under new leadership Yahoo is more amenable to a deal."

Yahoo founder Jerry Yang fought off Microsoft's acquisition and search partnership attempts last year. Many shareholders and analysts were in favor of the deal. When Yahoo's fortune's failed to improve after talks between the companies collapsed, Yang was replaced as CEO by Carol Bartz. She started in her new job in January and has said that she doesn't intend to publicly discuss any potential negotiations with Microsoft or other suitors. For its part, Microsoft CEO Steve Ballmer has continued to say that some sort of partnership with Yahoo makes sense. Yang remains with the company as Chief Yahoo and as a board member.

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