Yahoo had spurned Microsoft's $40 bid: unsealed court papers

In papers unsealed today in Delaware's Chancery Court, lawyers representing Yahoo! investors said Yahoo! officials "gave the back of their hand" to Microsoft's endeavour to negotiate a buyout. Microsoft Corp. had offered $40 a share to Yahoo! Inc. in January 2007, show court papers unsealed during a lawsuit regarding Yahoo!'s refusal to accept Microsoft's takeover offer. Yahoo!'s shares are now trading in the range of $26.

Jerry YangSome Yahoo! shareholders are now looking to hold chief executive officer Jerry Yang and other directors accountable for their refusal to accept Microsoft's offer. Microsoft had made a $33 a share offer for Yahoo! on 31 January, and had withdrawn it on 3 May because Yahoo! consistently maintained that it undervalued the company, and did not agree on a price.

The complaint says Microsoft's chief executive officer Steve Ballmer was willing to part with $40 a share last year to help Yahoo! compete with search rival top Google Inc. Investors say Yahoo! CEO Jerry Yang used his powers "to delay, to refuse to negotiate in good faith and to erect roadblocks'' to Microsoft's bid.

Activist investor billionaire Carl Icahn has bought Yahoo! stock since 3 May, when Microsoft scrapped its bid, and has threatened to oust the directors if they don't engage with Microsoft. He has proposed his own set of directors, and has won support from John Paulson's Paulson & Co., Pickens and investor Daniel Loeb, who have also acquired stakes in Yahoo!

Yahoo!'s directors are scheduled to stand for re-election during its next shareholder meeting slated for end July.

Shareholders suing directors in the Delaware suit would like to see them held financially liable for spurning Microsoft's offer, and setting up a costly employee-severance plan in case of a hostile takeover.