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Yahoo Adds Severance Benefits in Case of Merger

Yahoo put in place on Tuesday severance benefits that would be given to all employees who might be laid off if the company was sold.

Yahoo
CNBC.com
Yahoo

Yahoois the target of an unsolicited bid from Microsoftto acquire the Web pioneer. Yahoo has rebuffed Microsoft's original bid, saying it undervalues the company.

In a securities filing, Yahoo said if an employee is dismissed without good reason within two years of change of control in the company, employees will continue to receive their annual base salary and certain benefits for at least four months and up to 24 months depending on position.

A source close to Yahoo said the severance plans were put in place to protect employees and put their minds at ease. In the filing, Yahoo also said the plans are aimed at helping to retain employees.

Under the arrangements, there will also be an accelerated vesting of any equity-based compensation owed to them prior to the termination.

Brenon Daly, an analyst at the 451 Group, said a company targeted for acquisition will often provide "golden parachutes" to take care of their employees when the company is in play.

"It's just public posturing," said Daly. "The deal's going to get done."

Microsoft has said it can wring out $1 billion in cost savings and revenue benefits from the Yahoo acquisition. Analysts expect some of the savings to come from a reduction in overlapping areas between the two companies.

Proxy Fight

Meanwhile, Microsoft will authorize a proxy fight at the Internet company this week. Unless Yahoo quickly reverses its position and enters into talks, Microsoft will seek to nominate a slate of directors to Yahoo’s board by March 13, the final deadline for nominations, and pursue a lengthy campaign to oust the board.

The move, expected to cost about $20 million to $30 million, was Microsoft’s alternative to raising its $44.6 billion bid and is seen as a less expensive way to put pressure on Yahoo’s board. Yahoo rejected Microsoft’s original offer as undervalued.

It is only the latest twist in one of the biggest Internet takeover battles in recent years. Since unveiling its aggressive offer, Microsoft has hinted that it would pursue all avenues to lock up Yahoo as it races to catch up to Google.

As the software giant’s stock has fallen 12.8 percent since announcing the offer two weeks ago, so has the nominal value of the deal, to about $41 billion. Many Yahoo shareholders, including Bill Miller of Legg Mason, have said that Microsoft must raise its bid to strike a deal.

Raising the $31-per-share offer will cost Microsoft an additional $1.4 billion for every dollar added.

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