Did Yahoo cobble together an unusually pricey employee-severance plan to stymie the advances of Microsoft? As a complaint brought by a group of Yahoo shareholders is unsealed, such questions are swiftly mounting.

A complaint unsealed by a Delaware court sheds new light on an employee-severance plan Yahoo Inc. adopted as it was grappling with Microsoft Corp.'s acquisition bid.

The complaint, filed by Yahoo shareholders, alleges the severance plan was designed to thwart Microsoft's bid. According to Yahoo estimates, the plan could have added $462 million to $2.1 billion to Microsoft's costs, based on Microsoft's initial offer of $31 a share, or $44.6 billion, court documents show.

The complaint calls Yahoo's severance plan "highly unusual" and alleges the company was "throwing sand in the gears of Microsoft's plans for a smooth integration."

The filing also says Microsoft had offered to buy Yahoo for about $40 a share in January 2007, roughly a year before its recently aborted offer. The suit says Yahoo's then-Chief Executive Terry Semel responded to the earlier offer via a "board-authorized" letter in which he rejected "a broader strategic transaction at [that] time" but remained open to a "commercial partnership arrangement."

Microsoft formally withdrew its most-recent offer for the company May 3 and has said it is continuing to talk to Yahoo about possible deals but isn't discussing a revived bid to acquire the entire company. A spokesman for Microsoft declined comment on the latest disclosures.

The details behind the bid, particularly the costs of the severance plan and the allegation it was designed to thwart a deal, could add to the arguments by shareholder activists seeking to topple Yahoo's board. Carl Icahn has filed a proxy slate to replace Yahoo board members and bring both sides back to bargaining.

Yahoo spokesman Brad Williams said Yahoo adopted the employee-severance plan to ensure that Yahoo could continue to attract and retain "the industry's best talent," which was in the best interest of shareholders. He said Yahoo was disappointed by the judge's decision to unseal the documents but the company was confident the move wouldn't impact the outcome of the case, which it says is "without merit."

Continue reading on WSJ.com

Next article » Hilton’s Hotel Hustle

Previous article « Hi-Tech Trend-Following: More Than Meets The Eye