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Yahoo! has $6 billion in legal exposure

Posted May 05 2008, 09:21 AM by Douglas McIntyre
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Pegging Yahoo's potential financial exposure from shareholder lawsuits after it turned down an offer of about $33 from Microsoft is hard. It starts with the difference between the offer and where the stock falls after the rejection. That price could be $22 or lower. Investors would have lost $12 billion, and perhaps more.

Yahoo is lucky, if one can call it that. Proving damages beyond the actual financial set-back to shareholders will be hard. Investors were not "damaged" as much as they simply lost money.

The other factor to Yahoo's advantage is that some groups of stockholders may not sue it at all. That would include the company's founders. Along with some large shareholder who supported the company walking away, probably 20% of the stock is in hands of people who would take no action. But, large class actions suits, especially if they are making progress, could be joined by that majority of the stockholder base who held shares three months ago as well as when the offer was rejected.

The issue of who held shares and when is critical to the math. Many owners sold their shares the day the offer was public. Shareholders who were in at $19, where the stock traded before the offer, can't get the full difference between that and $33, if Yahoo's share price moves up again. And, it could, if the company cuts a deal with Google to sell its search advertising.

Suffice it to say, Yahoo's board took a very long bet, especially when it comes to shareholder liability, when it turned the offer down. Depending on how many shareholders actually saw $14 in profit go down the drain, a lawsuit lost by the company could cost a fortune.

That does not include the tremendous burden on management to defend any suits or the tens of millions of dollars in legal costs. Otherwise, rejected the offer was just a fine idea.

Comments

 

Yahoo was stupid. I did not want to see the deal go through but still, they were stupid. I like Yahoo but the ship is sinking.

Yahoo should start chopping heads starting at the top.

Either way, Microsoft has done a great job of hurting a competitor so they still win. I don't think the deal was a great idea for Yahoo! but I think that it would have made them the most money at least in the long run. Their popularity and failed businesses that they have been buying are not as good as that of Microsoft or Google. However, it is sad to know they might be using Google Advertising because that is already a service too powerful for the internet and this will only make those Google Ads appear in more places.

How do you sue because your too greedy to accept an interim profit vs. a promised profit? So, if Microsoft walked away from the deal but Yahoo wanted to move forward then the stockholder's sue Microsoft for unrealized gains? Stocks are volatile! The smart investors sold when the price jumped and saw a windfall profit. The greedy investors jumped on the bandwagon late (fools, you already missed the boat) or held on too long when the deal was obviously in danger of falling through. So, those that held were either 1) believing in the future of the company, 2) using it as an interim to get MS shares, or 3) betting that the deal would go through and they would get more than if they sold before the takeover.

Oh well, they held on too long, the emotions played out, and the value of the stock is tied to its financials not somebodys dream that big brother Mictosoft was gonna make Yahoo more money than they can on their own.

If ya believe in Yahoo, hold it, your better off than if Microsoft took over. If you don't believe in yahoo, sell it. If all you want to do is harrass management for somebody's actions external to the company - shame on you! There should be an ability for a companies management to sue investors for harrassment in cases like this!

Egos got the best of Yahoo. Now the company is in a worst position than before.

Microsoft never wanted to buy Yahoo. It was just a propaganda stunt to pop the falling US markets. The US economy is a shell game an Enron if you will. The American people better enjoy this current recession because it will get much much worse. Depression is coming and you can not stop it.You made your beds now sleep in it. Debt has to be repaid and you freeloading Americans can not pay your bills. No more credit for you. CRASH

Microsoft is the clear winner here... no one will want Yahoo after this.

I do not understand why anyone thnks that search engins are useful.  The valuable top rankings are sold, not really useful to see the thousand top advertisers when I do a search.

"Sponsored links" means a site is no longer useful.  Honest searches have always been subverted by the monied interests, remember Lycos, Altavista, Ask Jeves?  All honest and useful, then were commercialized and now very unuseful, almost a complete waste of time.

Google sucks now as well, as they are returning sponsors, not data.  

Once again, money ruins everything.

Jerry Yang might as well commit lhari kari for real now - cause he already has figuratively and financially! Too much ego Jerry.

I think this was a brilliant move by Balmer to send Yahoo!'s stock price down and to allow Microsoft to come back in a few months with a much lower offer that stockholders will force the board to accept. In addition, the stockholder lawsuits will put additional pressure on them to accept.  Micrsoft will walk away with Yahoo! for many billions of dollars less than if the Yahoo! board had accepted. All of the blame will be placed at the feet of Jerry Yang.

I places a sell on all my 3000 shares  not taking the offer was bad very bad.I had my shares two years. if a suit comes I'm in the jerks.

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