Yahoo! did its best to stymie a takeover by Microsoft, even when it offered $40 a share, because chief executive Jerry Yang let his heart rule his head.
According to documents released by Delaware's Chancery court this took two forms - adding poison pill clauses to contracts which would reward staff for leaving the company in the event of a takeover. Secondly pursuing an advertising deal with Google which would leave Microsoft with an expensive extraction job to avoid anti-trust charges if it wanted to conclude any deal with Yahoo!
Documents accuse Yahoo!'s chief executive Jerry Yang of "deep hostility toward Microsoft" and blamed the board for not protecting shareholders from damage caused by that bias. It is also claimed that Yang had previously rejected an advertising and search deal with Google because both areas were too central to Yahoo!'s future business. He restarted talks with Google only in reaction to the Microsoft offer.
The papers also reveal the length of time Microsoft has been pursuing Yahoo!
The company first endured Ballmer's seduction techniques in mid-2006. Further "overtures" were made to the board in August and October 2006 and in January and October 2007 before the first public offer in January 2008.
The document states: "Yahoo!'s reaction has been consistent, giving the back of the hand to Microsoft's efforts towards a consensual deal, including a January 2007 acquisition proposal offering about $40 per share."
In October 2007 Yang and the board agreed to write a standby press release all but rejecting any future Microsoft offer.
The documents accuse Yang and Filo of letting their hearts rule their heads by letting their emotional connection to the company they started over-rule the best interests of shareholders.
"Yang's ego drove him to strongly desire a future for Yahoo that could diverge from the best interests of shareholders - preserving independence from industry giant Microsoft."
The poison pill measures would have given all 14,000 Yahoo! staffers the right to walk out, and pick up generous termination payments, for two years following any takeover if there was "substantial adverse alteration" in their jobs. Yang is also accused of keeping secret Microsoft's own retention plans for staff. These actions were likely to hinder any smooth integration of the two companies.
The case is being brought by Yahoo! shareholders including Detroit's Police and Fire Department Retirement and the city's General Retirement System.
The papers were filed under seal with the court but Judge William B Chandler III ordered them released. The documents are available as pdfs from here.
More immediately for Yahoo! it must face shareholders, including Carl Icahn, at its general meeting in July. Shareholders will vote to back the existing board or select new directors more likely to approve the takeover. ®