Some shareholders simply decided to sell. One activist investor called for the overthrow of the current board. Others are pursuing shareholder lawsuit, with more expected.
While shareholder frustration may eventually reshape Yahoo's boardroom, experts doubt its strength in the courtroom. "There's no question that the board of directors could have done a better job for its shareholders," says Scott Keller, a founder and analyst at DealAnalytics .com. "But that's a far leap from the legal world of class action lawsuits."
Yahoo's stock shed 15 percent of its value Monday. Though share price remains above pre-bid levels, few analysts think shareholders stand a chance of selling anytime soon at the $33-per-share price offered by Microsoft.
Many analysts say Microsoft won't try again for Yahoo, despite needing the acquisition to gain a toehold in the search advertising market dominated by Google. "Microsoft is probably going to have to see an advance from Yahoo. The bridegroom has been left at the altar twice, so it's up to the bride to show she's interested in getting married," says Mr. Enderle.
The possibility that disillusioned shareholders may sell or overturn the board, however, puts pressure on Yahoo's CEO Jerry Yang to give them some hope of a turnaround.
That might involve wooing a different buyer, like Rupert Murdoch's News Corp.
Or, Yahoo may continue to pursue a partnership with Google. Under such a deal, Yahoo would outsource advertising tied to search queries on its sites in exchange for revenue.
"If [Yahoo's search engine] was one of the things holding up their old stock price – and it was – then the stock drops to a new low because you have to base it on something else," says Enderle. "They've fielded a series of ideas and the market didn't like any of them."
He warns that the reported high-fiving among some Yahoo managers following Microsoft's pullout might only fuel shareholder anger come election time.
Yahoo's annual meeting is slated for July 3.
Still, Mr. Keller and other analysts doubt Yahoo's board has much legal exposure because the majority of shareholder lawsuits turn on some issue of fraud or lack of disclosure, not simply the falling short on fiduciary responsibilities to shareholders.
"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'. "
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.