Yahoo settles lawsuits over Microsoft bid

Yahoo executives agreed to revise the Internet company's severance plan to settle investor lawsuits over their decision to rebuff buyout offers from Microsoft.

The changes will make it easier for potential suitors to buy Yahoo, according to papers filed Wednesday in Delaware state court.

Yahoo agreed to alter the severance terms to ward off a "costly and distracting legal process," and not in anticipation of any transaction, said spokesman Brad Williams.

Shareholders sued in February after Yahoo Chief Executive Jerry Yang rejected a Microsoft bid. Microsoft dropped a final offer of as much as $33 a share, or $47.5 billion, in May.

Two Detroit pension funds argued in the Delaware Chancery Court suits that Yang used Yahoo's severance plan to thwart Microsoft by giving employees incentives to quit rather than work for a buyer.

The plan, approved by Yahoo's board in the wake of Microsoft's bid, served as a "quasi-poison pill," investor advisory firm Glass Lewis said in July. A poison pill is a type of corporate-takeover defense.

The existing plan requires that workers be paid severance if their jobs are eliminated or altered after a change in control of Yahoo. The company said the policy was aimed at retaining employees. Investors complained that it made Yahoo more expensive to acquire.

Under the settlement, Yahoo will alter the plan to allow investors to launch proxy fights without triggering severance payments to employees, according to court papers.

The goal of the settlement is to "reduce the cost of a severance plan to an acquirer and remove the impediments to delivering value to shareholders in an acquisition," Joel Friedlander, a lawyer for investors, told Delaware Chancery Judge William B. Chandler III in a teleconference Tuesday.

Yahoo also will drop part of the plan that freezes severance rights in place once an offer is made, according to court papers. That would give directors room to change or eliminate severance provisions as part of buyout negotiations.

Chandler still must give final approval to the settlement, which resolves four lawsuits brought by Yahoo investors, including the Police and Fire Retirement System of the city of Detroit.