In a revelation that could have wide-ranging implications for Yahoo, documents unsealed in a shareholder suit show the company rejected a deal to outsource search to Google just one day before Microsoft made its infamous takeover offer.
A memo to executives prepared for an all-hands meeting on Jan. 30 — the day before Microsoft’s offer — dismissed the idea of hooking up with Google because of antitrust concerns and the long-term impact on the company’s value.
The document came to light when Delaware Chancellor William B. Chandler III unsealed the amended complaint in a case two pension funds brought against Yahoo. The funds allege that Microsoft directors — especially CEO Jerry Yang — breached their fiduciary duties by adopting defensive measures to the detriment of shareholders.
“We are focused on long-term value creation rather than short-term gains,” the memo said. The memo argued that while an outsourcing deal with Google would provide short-term revenues, it would undercut Yahoo’s ultimate value proposition.
“Short-term analysis of the revenue potential of outsourcing monetization may not take into account the longer-term impact on the competitive market if search becomes an effective monopoly,” the memo said.
Yet, on April 9 Yahoo announced it would undergo a test with Google to outsource search to its competitor. The evidence that management had already identified outsourcing as not in the company’s financial interest may bolster claims that the board acted to entrench itself rather than protect shareholders’ interests — a violation of fiduciary duties.
The complaint alleges that Yahoo was following an ABM strategy (Anybody But Microsoft) as it desperately tried to cut deals with News Corp. and AOL. When the Google test was announced in April, The New York Times noted, “Yahoo suggested it might be willing to cede part of its core…