Yahoo! Uses Severance Packages Strategically to Thwart Microsoft Takeover – Lessons You Can Draw

“The perception of a problem is always relative.
Your headache feels terrific to the druggist.”

– Ramona E. F. Arnett

ACTUAL CASE HISTORY: (February 24, 2008) Recent press reports of Microsoft’s attempt to take over Yahoo!, and Yahoo!’s attempt to thwart that takeover, have highlighted a new, intriguing turn: Yahoo! has announced its intention to use severance packages – of all things – to thwart that takeover attempt. Never before have employees played such a clear and critical role in takeover battles between corporate titans.

With some $40 billion in cash in its corporate treasury, and a strong desire to enter the internet advertising field, Microsoft has recently asked Yahoo!’s Board of Directors to approve a merger of the companies. Yahoo!’s Board has flatly refused, and in defense has sought other corporate titans to merge or affiliate with, including Viacom and Google. Unfortunately, Yahoo!’s attempts to do so have, so far, fallen flat.

This week Yahoo! announced a new anti-takeover tactic: it has adopted a severance plan covering most, if not all, of its employees that would guarantee them as much as two years worth of salary if they are fired after such a merger, or if their jobs or working conditions materially changed after such a merger. In either case, they could leave and be paid for up to two years. (A material change in job title, job duties, reporting lines, benefits, office location, etc., is called “good reason for resignation” in many severance plans, and in most severance plans – including this one – would trigger the right to collect severance.)



Why would this discourage Microsoft? First, it is almost certain that there would be some employment-overlap between the companies in the event of a merger. A merged Microsoft-Yahoo company would not need two HR departments, two public relations departments, two legal departments, two Directors of Research, two Directors of Investor Relations, two CEO’s, etc. Surely some employees would lose their jobs, and many others would undergo “good reason” changes in job title, job function, reporting lines, or other material aspects of their jobs. These people could voluntarily “jump ship,” leaving any combined Microsoft-Yahoo company with a very large severance bill, perhaps in the billions.

Second – and even more important – is that the ability for Yahoo! employees to “jump ship” might render meaningless the very reason Microsoft wants to buy Yahoo! – for its special, talented, valuable engineers, software designers, strategic salespeople, computer and software scientists, and other people representing “unique human capital.” It is commonly acknowledged that, without its “special” people, Yahoo! represents little of real value to Microsoft; buildings, furniture and software are not worth the reported $40 billion price tag Microsoft has offered to pay, and the final price tag to acquire Yahoo! may end up very much higher.

An “angel” with access to Microsoft’s internal announcements has sent us a copy of an email sent to Microsoft employees by Kevin Johnson, President of Microsoft Platform and Services division. In it he told Microsoft employees “People are the single most important asset in this combination. We want the very best talent at the combined company, and we will demonstrate this to Yahoo! and Microsoft employees at each step of the deal.”

If Microsoft purchases Yahoo! and ends up losing the “special” employees of the company, it will have lost out in the takeover battle, despite paying a very high price. If that happens in this instance, it would not be the first time in the history of corporate takeover battles. But Yahoo!’s use of severance agreements as a defensive strategy is perhaps one of the very first times that the special value of special employees has been used as so strategic a part of such battles.

LESSON TO LEARN: Companies are worth little without their “special” people, the people who collectively comprise “unique human capital.” If they disappear, the company is worth little. That lesson is learned time and again in business. It highlights how valuable employees are in business, even if they are often not treated that way, in terms of compensation, job security, and medical and retirement benefits.

More and more, employees have to accept that they have “strong hands” in corporate life, that they can “play” those strong hands to their considerable advantage if they try to, and that they need to learn how to “play the game” to their best ability. It all starts off with making yourself “especially valuable.”

WHAT YOU CAN DO: If you are a Yahoo! employee – or if you are ever in the middle of a corporate takeover battle like the one brewing between Microsoft and Yahoo! at the present time – consider doing each of the following:

1. Prepare a list of the important company functions you fulfill on the job, from “direct interface with most important clients” to “oversight of staff morale” to “supervision of all critical corporate communications.”

2. Prepare a list of the special skills, experience and relations (that is, “unique human capital”) that make you the only person who can fulfill such important company functions.

3. Prepare a “potential target list” in your company of persons to whom you might send a memo outlining your “important company functions fulfilled” and your “special skills, experience and relations” that qualify you, uniquely, to fulfill your functions.

4. Prepare a “potential target list” of persons in the company attempting to acquire your company.

5. Prepare a list of the rewards (such as salary, bonus, benefits), risk limiters (such as an employment contract, minimum notice before termination, protection against loss of unvested stock or stock options) and responsibilities and resources (such as who you report to, having a full-time assistant, having hire-and-fire authority) that you find important and valuable.

6. Prepare a draft memo to a “target list” of “persons and pockets of power and profit” inside your company, and a target list in the company seeking to acquire your company, outlining (a) the critical functions you fulfill, (b) the special “human capital” you have, and (c) what you desire to remain in your job, that is, what would make you want to stay on board, no matter who the corporate owners are.

7. Be prepared to send your memo to your present employer, or after a takeover is definite, to the acquirer. Certainly, you should NOT send out your memo to the prospective acquirer until the acquisition is certain. In either case, though, (a) be respectful, (b) be reasonable in what you seek, and (c) always base your requests in their future success, which is the strongest rationale there is. This is a direct application of what we call our QVP™ or Quality v. Power™ Method: trading your “unique human capital” to obtain what you seek from your work: rewards, limitations on risk, and increased responsibilities and resources to further develop your “unique human capital.”

[Incidentally, this is precisely what the highest-level executives do in these circumstances, but their goal – what they seek – is often termed a “retention package.”]

Microsoft may win its takeover battle. Yahoo! may prevail. No matter who you work for, you need to acquire new and valuable “unique human capital,” you need to make sure those in authority know you have it, and you need to “trade” your “unique human capital” for what you seek from your hard work. That is the essence of our QVP™ Method of workplace negotiating. It’s simple, yet so very powerful. The takeover battle may represent a “headache” for Microsoft and Yahoo!, but it can be terrific for you, if navigated and negotiated wisely.

If you would like to obtain a “model” memo to help you request or negotiate severance [click here].

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation is a matter of motivation, and leverage is what you do to motivate. It’s wise to create leverage every day, and to take every advantage you can of what your leverage can get you. You may never be in the same circumstances as are today’s Yahoo! employees, but chances are – sooner or later – the lessons of their circumstances will prove a valuable lesson for you. There are opportunities and problems in every aspect of working life. Intelligence in creating, and taking advantage of your own leverage, makes every difference in your career. Gaining maximum rewards while taking minimal risks is what business is all about. But it takes more than luck to make that happen. It takes forethought, care and prudence, the essential ingredients in good negotiating.

Always be proactive. Always be creative. Always be persistent. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

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