The USA tends to allow more things in business than we do in New Zealand or Australia. For example, our laws on food are strict, and strictly enforced. Similarly the legislation and Commerce Commission hold companies to account for their behaviour.
In the USA they are a bit more laissez-faire. Food is under regulated and under enforced. Also, each State of the US regulates it’s companies differently, and so companies have gravitated to Delaware as a nice place to be regulated from. The regulations are friendly, and the judges and lawyers are efficient.
But in the US consumers have teeth, and cozy legal deals can come unstuck.
Two pension funds are suing Yahoo for rejecting Microsoft, an looking to create a class action:
“The plaintiffs asked a Delaware Chancery Court to block the Yahoo board from completing any such transaction with those companies, to force it to reconsider Microsoft’s offer, and to block it from implementing defensive measures that would render the company unattractive to potential buyers.
This is serious. When a company is in play – under offer – the Directors have a fiduciary duty to maximise the return to the shareholders. That means playing hard to get may work in the short term, but you’d damn well better cut a deal if it is as lucrative as the one on offer.
The ramifications of not doing so include jail time. Being a Director is a serious thing, and a board with an offer on the table should quickly form a committee of all the external directors to consider the offer, and take the action that will see best dollar return to shareholders – even if it means destruction of the business.
Rather than accept the offer, Yahoo’s board rejected the offer and installed a poison pill – to make it harder for Microsoft to buy. This has lowered the value to shareholders of Yahoo (although as I and others commented on Rod’s blog, poison pills are a relatively empty threat), opening those Directors up to liability from shareholders that saw potential money disappear.
The winners here will be the lawyers. The losers will be Yahoo shareholders if the deal does not go ahead, and Microsoft shareholders if the deal does go ahead. That leaves plenty of shorting opportunities on these two lousy companies.
Lance Wiggs 