Yahoo sets employee buyout plan

Yahoo Inc., owner of the most-visited U.S. website, adopted severance plans for employees that would pay as much as two years of salary to fend off a $44.6-billion bid from Microsoft Corp.

Full-time employees would get at least four months of severance pay, and executive officers would get 24 months, Yahoo said Tuesday in a regulatory filing. Employees will be eligible for the payments if they depart within two years of a purchase.

Yahoo’s board, after rejecting Microsoft’s offer last week, may be taking steps to make a purchase by the world’s largest software maker more expensive. The $31-a-share bid, which was 62% higher than Yahoo’s share price the day before, “substantially undervalues” the company, Yahoo said.

“It makes it less attractive to Microsoft,” said Laura Martin, an analyst at Soleil Securities in New York. “If they want to come in and cut a billion dollars’ worth of costs, here’s a structure where severance is predetermined.”

Yahoo’s plans also entitle departing employees to health insurance, accelerated vesting of options and job-search assistance. The packages are for employees fired without cause or who leave the company for “good reason,” Yahoo said.

Yahoo, based in Sunnyvale, Calif., also may be trying to keep employees as it seeks a higher offer or enters a proxy fight with Microsoft, Martin said.

Microsoft, based in Redmond, Wash., said after Yahoo’s rejection that it was “moving forward” and might take the bid to shareholders. Some Yahoo investors said they would favor a deal at a higher price.

Yahoo shares fell 65 cents to $29.01. Microsoft lost 14 cents to $28.17.