Loving the updates and insight, Gordon. This is good stuff.

As a general matter, I think you're right that the board's decision not to pursue a possible deal is protected by the BJR. As applied to this case, however, I'm not sure I agree.

Consider Moran v. Household Int'l, in which Household deployed a poison pill and the court reviewed that action under the Unocal standard. At the time Household adopted the pill, no bid had been made to its shareholders. Indeed, unlike the Yahoo case, there wasn't any real propect of such a bid.

As I've suggested before, the question of Unocal versus BJR thus depends on whether the Court views the Google maneuver as a legitimate strategic transaction in furtherance of a pre-existing business plan or as a mere defensive tactic (analogous to a defensive acquisition).

Steve, This is an interesting issue that I should have mentioned this in the original post. The short response to your comment is that there is no Google maneuver, yet. The two sides have been talking, but that seems pretty far from a "defensive action" for purposes of Unocal.

The longer answer is that the law regulating preemptive defensive actions is not all that clear. As you know, Moran was quite a different world from our present one, and its hard to imagine anyone bringing a Moran claim with a straight face today. Of course, preemptive defense claims are not limited to the adoption of poison pills, and the Court has applied Unocal in other contexts, such as Time-Warner and Omnicare. (More about Omnicare below.)

So I agree with your point that Unocal may apply to defensive actions taken prior to a bid. And I agree with the apparent implication of that point, namely, that the toughest part of these cases is deciding whether something is a defensive action. But other than the severance agreements with Yahoo officers (perhaps), I don't see anything that Yahoo has done that looks like a defensive action.

Determining whether some pre-bid action is defensive seems pretty dicey, since our best case on preemptive actions are from over 20 years ago. This footnote from Justice Veasey's dissent in Omnicare is interesting on that issue:

The basis for the Unocal doctrine is the "omnipresent specter" of the board's self-interest to entrench itself in office. NCS was not plagued with a specter of self-interest. Unlike the Unocal situation, a hostile offer did not arise here until after the market search and the locked-up deal with Genesis. The Unocal doctrine applies to unilateral board actions that are defensive and reactive in nature. Thus, a Unocal analysis was necessary in Paramount Communications v. Time Inc. because Time and Warner restructured their original transaction from a merger to an acquisition in response to the Paramount bid. In Time, the original Time-Warner stock-for-stock merger, which this Court held was entitled to the presumption of the business judgment rule, was jettisoned by the parties in the face of Paramount's topping bid. The merger was replaced with a new transaction which was an all cash tender offer by Time to acquire 51% of the Warner stock. It was the revised agreement, not the original merger agreement, that was found to be "defense-motivated" and subject to Unocal.

My guess is that a deal with Yahoo and Google be considered defensive at this point, even if the transaction were "legitimate." That is, Unocal would apply to that transaction.