Courts change Yahoo's 'poison pill' severance deal

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A judge has approved Yahoo's revised employee severance plan, removing one of the major hurdles standing in the way of a potential takeover of the company.

The original "poison pill" severance package was put in place by former chief executive Jerry Yang to ward off a hostile takeover by Microsoft. It essentially allowed employees to leave with incredibly generous payouts should the company be taken over.

Under the old scheme, employees qualified for a sizeable payout if they decided to quit within two years of a takeover. The new plan stated that any Yahoo employee who leaves within a year would be eligible for a reduced severance package, depending on their position.

The plan also states that the election of a new board of directors isn't considered a change in ownership, nor is the sale of the company's search business. It also clarifies the circumstances for firing for "good reason," and requires arbitration in the case of disputes.

The acceptance of the settlement by Judge William Chandler III brings to an end a lawsuit brought by several pension funds, which claimed Yahoo had neglected investor interests in adopting the poison pill.

In his ruling, Judge Chandler noted that the settlement removed the barriers to a buyout: "I conclude that the settlement, obtained by plaintiffs, amounted to a substantial benefit to Yahoo's shareholders because the key terms of the settlement made it less expensive to sell Yahoo, making the company a more attractive target to potential suitors."

Yahoo also proclaimed itself satisfied with the terms of the deal. "We are very pleased that the settlement was approved because we believe it is in the best interests of the company and its shareholders."

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