Yahoo! opens the way for bids as it dumps costly severance plan

LONDON - Yahoo! has changed its costly employee severance plan following a shareholder lawsuit, with the new terms potentially tempting Microsoft to a cheaper and easier takeover of its search business.

The new severance plan will cut costs for interested buyers such as Microsoft.

Any buyer will now only have to pay laid-off Yahoo! staff for up to one year after the company has been taken over. Previously, staff would be paid severance for up to two years.

The provisions were originally put in place after Microsoft's failed takeover earlier this year, when the software giant offered to buy Yahoo! at $33 a share, which was blocked by former CEO Jerry Yang.

A replacement for Yang is currently being sought by Yahoo! as it also prepares to lay off 1,500 staff.

Yahoo!'s board is said to have looked at former AOL chief Jonathan Miller to take the role on. However, a new name has emerged into the fray, former Vodafone boss Arun Sarin, who left the company in May.

Sarin is cited for turning the telecoms company around, and through an ugly shareholder battle, which could come in handy when appeasing disgruntled Yahoo! shareholders.

While Microsoft has said it is no longer interested in an unsolicited takeover, it has not denied interest in acquiring Yahoo!'s search business.

Yahoo! investors remain eager for the deal to take place, as stock prices have been lingering around the $11-$12 mark for a number of months.

Ivory Investment Management, which owns 1.5% of Yahoo! shares, urged the company to sell its search business to Microsoft yesterday, saying the deal would double Yahoo!'s value.

In a letter proposed to Yahoo!'s boardroom, partner Curtis Macnguyen, said: "We believe a search deal with Microsoft could deliver value to Yahoo! shareholders of $24-$29 per share, or more than double yesterday's closing price of $12.19.

"We envision a deal whereby Microsoft would acquire all of Yahoo!'s search assts and enter into a perpetual agreement for Microsoft to be the search provider for all Yahoo! properties."

The letter also stated that the two companies could potentially save $800m with the deal by reducing duplicate costs.

As well as a deal with Microsoft, other deals could still be done.

Yesterday, Time Warner said that it was still interested in a deal between its AOL unit and Yahoo! and Microsoft.

At an investor conference in New York, AOL said a merger or sale could be resolved "fairly soon".

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