Back in the days when Microsoft was trying to buy Yahoo, Yahoo executives devised a plan to retain employees following a merger or change in control at the company. The plan, which would have given generous benefits to employees who were fired or reassigned after a merger, quickly became a flash point of controversy.
Critics said that the broadly-worded plan would have allowed just about anyone who was unhappy to claim severance benefits and leave. Microsoft said it would have added hundreds of millions of dollars to the cost of buying Yahoo and pointed to the plan as one of the reasons it decided to walk away from its $47.5 billion offer to buy Yahoo.
Two Detroit pension funds filed a shareholder suit to force Yahoo to repeal it. Carl Icahn called the plan “a poison pill” (that was when he was waging a proxy fight against the Yahoo board, on which he now sits).
On Wednesday, Yahoo said it had amended the severance plan as part of its settlement of the shareholder suit.
The revised severance plan still offers generous benefits but only to employees who suffer a “material diminution” in “duties or responsibilities” following a merger. These are things like a pay cut or a forced relocation to an office more than 35 miles from their principal place of employment. The revised plan also can be altered or eliminated by the Yahoo board even if the company is in merger negotiations (the original plan could not), and it reduces the time employees have to file severance claims to one year following the merger, from two years. It also narrows the definition of what would constitute a “change in control.”
The so-called “poison pill” may be gone, but the likelihood of a merger between Microsoft and Yahoo remains low.
Microsoft declined to comment. Steve Ballmer, the chief executive, has said repeatedly that the company is no longer interested in acquiring Yahoo (though it would still like to buy its search business).
Yahoo spokesman Brad Williams said: “This settlement is aimed at resolving this litigation, not in anticipation of a transaction.”
That fact that the severance plan was revised and the suit settled just as Yahoo was handing out severance packages and pink slips to some 1,500 workers is pure coincidence, according to a person close to Yahoo.
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