Yahoo! shareholders thump Yang in the fiduciaries

In late February, after Yahoo! famously rejected Microsoft's initial $44.6bn bid for the company, two share-holding Detroit pension funds filed a class action lawsuit against Jerry Yang and the Yahoo! board, claiming a "breach of fiduciary duties".

And now they're really peeved.

Late last week, Microsoft upped its offer to $47.5bn - or $33 a share. But Yahoo! rejected that too, and Steve Ballmer officially walked away from the bargaining table. In response, the Police & Fire Retirement System of the City of Detroit and the General Retirement System of the City of Detroit are back on the war path, vowing to file a fresh complaint against Yang and Co.

Rather than accept Ballmer's entreaties, Yahoo! is toying with the (legally-questionable) idea of posting Google-brokered ads to its search pages, and the Detroiters see this as proof that the company has no interest in making them large amounts of money.

"If Jerry Yang wants to understand why Yahoo shareholders are so unhappy, he should go to his new favorite search engine - Google - and look up the phrase 'breach of fiduciary duty,'" reads a canned statement from Mark Lebovitch, one of the lawyers representing the pension funds. "Yang's willingness to put the heart of Yahoo's search function in Google's hands to preclude a Microsoft bid representing a 70%-plus premium demonstrates that Yang was never negotiating in good faith."

Lebovitch didn't have time to speak with us. He was busy badmouthing Jerry Yang on national television. But we're sure he's less than pleased with Yahoo!'s stock performance since Ballmer walked away. Shares dipped 15 per cent yesterday, from $28.67 to $24.37 - though they rebounded to $25.72 before the bell this afternoon.

Many in the media are sure that other shareholders will soon follow suit with their own anti-Yahoo! suits, but this isn't likely. Any new complaint would be swallowed by the Detroiters' existing class action.

But two of the company's biggest shareholders - Capital Research and Management and Legg Mason - have taken the usual step of publicly chastising Yang and crew. "I'm extremely disappointed in Jerry Yang," Capital's Gordon Crawford told The Wall Street Journal. "I think he overplayed a weak hand. And I'm even more disappointed in the independent directors who were not responsive to the needs of independent shareholders."

Legg Mason's Bill Miller wasn't quite so harsh, but he did tell The Journal that Yahoo! should have lowered its asking price to $35 a share. Word is that the Yahooligans wouldn't budge from $37.

Could the deal still happen? Miller thinks so. In an interview with Bloomberg, he says Microsoft may return to the bargaining table. "I'm more puzzled by Microsoft's not going up to $37 than Yahoo's wanting to walk away," he said. "If they want to be a viable competitor, I would expect them to come back."

Sounds like wishful thinking to us. But you never know. A $50bn bid for Yahoo! is only slightly more ridiculous than a $47.5bn bid.

Yahoo! did not respond to our request for comment. But Jerry Yang discusses his post-Microhoo world here. ®