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Shareholder ire may reshape Yahoo

After failed bid, change may come through boardroom rather than courtroom, say analysts.

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"In practice, courts defer to managers in these matters and give boards great latitude," says Robert Daines, a professor at Stanford Law School. "Courts will say, 'Shareholders, if you don't like it, vote the board out'. "

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That's easier said than done, Mr. Daines adds, because boards often stagger the election of their directors. In Yahoo's case, the board is not staggered, a fact that some analysts expected Microsoft to capitalize on. When negotiations broke down Saturday, the software giant could have attempted a hostile takeover through board elections. Instead, it chose to drop the bid. In a letter to his Yahoo counterpart, Microsoft CEO Steve Ballmer noted that "by failing to reach agreement with us, you and your stockholders have left significant value on the table."

Interpretations differ as to what Mr. Yang was after in his dealings with Microsoft.

Enderle argues that the deal fell apart because each side fundamentally misread the other. Microsoft's strategy was to overpay to get a deal done quickly, while Yahoo interpreted the move as a starting bid. Yahoo's leadership, he says, can be likened to home sellers who refuse to lower their asking price in a down market.

Some see Yang's personal ambitions playing a role. "Yang is now focusing on his reputation. He has enough money of his own, but he wants to be a Bill Gates, not a Michael Milken," says William Mahnic, a lecturer at the Weatherhead School of Management at Case Western Reserve University in Cleveland. Ultimately, though, "he will have to justify walking away from a 70 percent premium."

Silicon Valley has a problem with outsized personalities getting in the way of good business, says Keller. "There's this huge ego problem that is often in direct conflict to what is in the best interests of shareholders," he says.

He's surprised to detect some of these dynamics playing out at Yahoo, a company that's been public since Silicon Valley's stone age circa 1996. "This was a public company for a long time. One would have hoped that in the past decade this youthful ego chest-pumping would have died down," says Keller.

Staff writer Daniel B. Wood in Los Angeles contributed to this report.