Shareholders sue Yahoo for rejecting Microsoft bid

The Yahoo-Microsoft takeover saga has already turned ugly, with a retirement board in Michigan lodging the first lawsuit against Yahoo Inc. for its rejection of Microsoft Corp.'s $44.6 billion US bid.

The Wayne County Employees' Retirement System, which owns about 13,600 shares of Yahoo, on Monday sued the company, according to Bloomberg News.In a complaint filed in Delaware Chancery Court, the board asked a judge to forcethe companyto consider takeover offers.

Yahoo on Monday formally rejected Microsoft's offer, made on Feb. 1, and saidit wasinadequate and "substantially undervalues" the company. Microsoft wasted no time in responding the company on Monday eveningcalled Yahoo's rejection "unfortunate" andsaid it would take its offer directly to shareholders.

Analysts expect further dissatisfaction with Yahoo's rejectionfrom its shareholders and said further lawsuits wouldn't be surprising. Microsoft's bid valuedYahoo at a 62 per cent premium to what the internet company's shares were trading at when the offer was made a valuation many analysts deemed generous, given that Yahoo's shares hadbeen on a two-year slide.

Yahoo's board of directors in 2001 adopted a poison pill provision, which is designed to foil potential takeovers. The provision allows investors to buy new shares of the company at half price if another party acquires more than 15 per cent ofYahoo stockwithout the board's approval. That would greatly boost the number of Yahoo shares on the market, which would increase the price Microsoft would have to pay.

Microsoft's bid for Yahoo could turn hostile, with thesoftware companypossibly making a move to replaceYahoo's board of directors.All of Yahoo's 10 directors are up for re-election in the company's next annual general meeting, the last of which was held in June 2006.

Microsoft has until March 14 to nominate its own board members, who would need to be voted in by shareholders in order to kill the poison pill, according to Bloomberg.