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Yahoo sued over cross-talk bidding provision

The lawsuit, filed by shareholder M&C Partners III, calls Yahoo a "difficult sell" and says that the restriction is anticompetitive.

A Yahoo shareholder has launched a class action lawsuit against the online giant, alleging that a ban on cross talk for firms interested in acquiring the company is anticompetitive and harms shareholders.

"The No Cross Talk Provision constitutes an unreasonable anti-takeover device, designed to entrench and favor [Yahoo co-founder Jerry] Yang and the current Board," M&C Partners III, the case's plaintiff, wrote in a suit obtained by CNET and filed with the Delaware Chancery Court last week. "It tilts the playing field unreasonably in favor of Yang, who is working to attract investors who will take a large minority position in Yahoo (less than 20 percent, but enough to effectively block any future proxy contest), and who can be expected to support Yang's desire to retain a disproportionate influence over Yahoo's business and affairs."

Reports of Yahoo forcing potential suitors to agree to the provision cropped up in October. The clause effectively bans companies from working together to bid for Yahoo. When the requirement was first made public, it was viewed as a simple way for Yahoo to increase competition as it pondered offers.

But M&C sees it another way. The shareholder acknowledged that in some cases, such a provision can be useful, but said that Yahoo "is the classic 'difficult sell,'" and therefore, should attempt to give buyers any opportunity to present the company with a solid deal.

If Yahoo is a "difficult sell," it appears many companies haven't seemed to notice. Over the last several months, a host of investment firms, including Silver Lake Partners and Bain Capital, have reportedly shown interest in acquiring all or part of Yahoo. Tech giant Microsoft and China's Alibaba Group are also reportedly considering buying a piece of the company.

M&C's lawsuit is just the latest shot Yahoo has taken from a shareholder. In September, following the company's ouster of former CEO Carol Bartz, major Yahoo shareholder Third Point spoke out about the online company's failings.

"From the failed Microsoft sale negotiations, to a subsequent bungled and disappointing search deal with Microsoft, through a series of misguided CEO selections, and most recently the Alipay debacle, this board's failures have destroyed value for all Yahoo stakeholders," Third Point CEO Daniel Loeb wrote in a letter to Yahoo's board. "Against this background, it is evident that merely replacing the company's CEO--yet again--will not be enough to alter the direction of the company. Instead, a reconstituted board with new Directors who will bring fresh eyes, relevant industry expertise, and increased investor alignment to the table is immediately necessary."

M&C appears to agree. Along with suing Yahoo, M&C included the company's board members in its lawsuit.

Yahoo did not immediately respond to CNET's request for comment on the lawsuit.

The plaintiff is asking the court to make Yahoo eliminate the cross-talk provision, rescind "any ensuing unfair transaction" that results from the provision, and resist any takeover requests until it "implements a procedure or process to obtain the highest possible price for shareholders."

(Via San Jose Business Journal)