Unsealed documents add to Yahoo-Microsoft drama

Newly uncovered documents in Yahoo shareholders' battle with the company allege that CEO Jerry Yang worked actively to undermine a deal with Microsoft, perhaps in some cases unethically -- and possibly illegally.

Yahoo expressed disappointment that Delaware State Court Judge William B. Chandler, III decided yesterday to unseal the documents, which originally had appeared in redacted form a month earlier, though it maintained the suit was without merit.

The new details -- part of a shareholder complaint announced on May 6, filed May 12,and unsealed just yesterday (PDF available here from shareholders' attorneys) -- may also be of interest to investor Carl Icahn, who is leading a shareholder revolt to replace the company's board. If he is successful, talks with Microsoft would almost certainly begin anew.

The shareholders in question, led by the pension funds of municipal workers, police, and fire employees of the City of Detroit, have not necessarily aligned themselves with Icahn Partners.

However, probably of greatest significance to anyone seeking to unseat Yahoo's board next month, are allegations that Yang pushed for approval of an employee severance plan which would have made it far more expensive for Microsoft to acquire Yahoo. Under that plan, any of the company's 14,000 employees would be eligible to quit and receive benefits for two years.

This plan was pushed through, the shareholders' complaint alleges, even after a consulting firm "expressed reservations about the breadth of the program." While Microsoft had set aside $1.5 billion for employee retention, Yang's plan would have raised that to anywhere between $2.1 and 2.4 billion.

The newly unsealed complaint also seems to confirm the feeling among many that Yang holds a good deal of antipathy towards Microsoft, that he actively worked to find another suitor for his company, and that the Google deal may have been motivated by Microsoft's actions.

But even with respect to Google, things are not what they seem. The complaint also alleges that a day before Microsoft made its initial offer, executives rejected a search/advertising deal with the Mountain View, Calif. company over antitrust concerns. But Yahoo later opened itself up to the possibility of essentially the same deal in April.