Yahoo! Says Severance Plan Unlikely to Cost $2.4 Billion

In a series of letters, Carl Icahn has been giving Yahoo’s Board of Directors a hard time about a severance plan that would be enacted if a “Change of Control” occurred at the company. He claims the plan would would cost $2.4 billion, making an acquisition or change of board of directors very costly.

But Yahoo has filed an FAQ with the SEC defending the severance plan and attempting to explain why the $2.4 billion number is unreliable.

  • The severance plan would only take place if a Change of Control occurs.
  • Voting in Carl Icahn’s board at the shareholders meeting would trigger the plan, and the closing of an acquisition deal with Microsoft would trigger the plan.
  • Yahoo cannot retract the plan until 30 days after the abandonment of a potential Change of Control, including an announcement of Change of Control. Essentially, Icahn himself made a termination of the severance impossible by announcing the proxy board so soon after Microsoft abandoned its bid.
  • Yahoo’s compensation consultant did not call the severance plan “nuts.” He called the idea that 100% of Yahoo employees would use the plan “nuts.”
  • Icahn got the $2.4 billion number from a shareholder lawsuit filed in the state of Michigan. Using the same assumptions as the lawsuit, Yahoo says the number would be closer to $845 million if 30% left and $514 million if 15% left. This is all based on a $35 per share stock price. Icahn is urging Yahoo to sell for $34.375.
  • The plan would be enacted for employees who were fired without Cause or those who left for Good Reason. Cause is used by companies to fire employees who aren’t doing their job. Good Reason could be used if an employees salary or bonus target was decreased substantially, if they were relocated further than 35 miles from their current office, or if there was a big change in an employee’s duties and responsibilities.

And what about the “poison pill” characterization by Icahn? Here’s what the FAQ had to say about that:

The term “poison pill” is widely understood to refer to stockholder rights plans which work by allowing existing stockholders (except the acquiror) to buy more shares at a substantial discount to the then current share price of the target if the acquiror purchases above a specified level of stock of the target (usually 15%) without the consent of the target’s board. As a result, this substantially dilutes the acquiror’s holdings and makes the acquisition much more expensive. The Plan, which is designed to preserve the value of Yahoo! during a period of uncertainty, has no such purpose or effect.

What do you think of Yahoo’s FAQ? Are they really looking out for their employees or are they trying to prevent an acquisition or a proxy board takeover? Sound off in the comments!

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