Yahoo amends controversial severance program

As part of its settlement agreement stemming from a shareholder lawsuit, Yahoo announced Wednesday it revised its controversial severance policy that had the potential of making a buyout of the company more expensive to a prospective buyer.

Yahoo faced investor wrath when it rolled out the change-in-control severance policy in mid-February, less than two weeks after Microsoft announced its $44.6 billion unsolicited buyout bid for the company.

The change-in-control policy would have applied if a buyer took control of Yahoo, or a new board of dissident directors were elected that constituted a majority on the board. The provisions of this policy, investors argued at the time, could have potentially driven up the cost of the acquisition by a couple billion for Microsoft. Yahoo, however, had contended that such estimates were too high, given the change-in-control severance would be triggered only if an employee was terminated within two years after a deal closed, or the employee's duties and responsibilities changed within that two-year time frame.

Under the amended policy, filed with the Securities and Exchange Commission on Wednesday, Yahoo noted five revisions:

1) The period during which the termination of an eligible employee would trigger eligibility for severance benefits is decreased from two years following a "Change in Control" (as defined in the applicable Amended Severance Plan) to one year. 2) The circumstances permitting an eligible employee to terminate employment for "Good Reason" (as defined in the applicable Amended Severance Plan) following a Change in Control have been amended. 3) The Board of Directors in place prior to a Change in Control is given the ability, subject to certain limitations, to terminate or amend the Amended Severance Plans during a Potential Change in Control Period (as defined in the applicable Amended Severance Plan) as part of any Board of Directors approved transaction that would constitute a Change in Control. 4) Any dispute between an employee and the Company concerning an application for benefits based upon a claimed material diminution in the employee's duties and responsibilities will be subject to binding arbitration. 5) Neither the election of a new Board of Directors that is made up of a majority of members who were not members of the Board of Directors prior to the election nor a sale of the Company's search business would constitute a Change in Control.

Although Yahoo has revised what investors had alleged was a defacto "poison pill" designed to thwart a takeover attempt of Yahoo, it has yet to be seen whether it will make a difference in drawing Microsoft back to the negotiating table after buyout talks failed in May. At best, Microsoft's CEO Steve Ballmer has said he's no longer interested in acquiring all of Yahoo, but a partial deal for Yahoo's search business is still of interest.

Yahoo's change-in-control amendment, meanwhile, comes as the company issued 1,520 pink slips Wednesday, as part of an unrelated move to save $400 million in annualized costs amid declining profitability.