The original offer of Microsoft Corp. to buy Yahoo Inc. appeared to fall apart over the number 37. That was the dollar share price that Yahoo’s board insisted the software giant should stump up. Some big shareholders are willing to take less, and have wondered why Yahoo’s directors stuck so hard to their guns—a move that ultimately shooed Microsoft away.
A Delaware judge may have shed some light on the matter on Monday by ordering the details of a shareholder lawsuit against Yahoo to be made public. Among other things, the 64-page document set out details of the issuance of 80,000 Yahoo options to non-executive directors over the past three years.
Two-thirds of these options came in 2005. The exercise price: the share price at the time, $36.75 (Rs1,566), meaning they would be worthless at any lower deal price. The financial incentive would have been minimal for Yahoo’s wealthy board members, but the price might have stuck in directors’ minds.
Microsoft had initially offered $31 a share to Yahoo and then raised it by $2 a share.
Of course, Yahoo’s board assessed the firm’s value in other ways too. But the options might have anchored some directors’ expectations.
The psychological impact might have been different, had Yahoo rewarded directors mainly with restricted stock instead of options—a move that would in any case have aligned them more closely with regular shareholders.