Was Yahoo blindsided (or worse) by Mexico?

December 3, 2012

By now, you’ve probably heard about the $2.7 billion judgement that a Mexico court has levied on Yahoo (YHOO). Late Friday afternoon — just 5 minutes before the SEC closed for the weekend — Yahoo filed this 8-K, which included a very sparse press release.

The timing was no doubt intentional — and proved yet again that the Friday night dump is a pretty fun place to be. However, because this is Yahoo, most of the major media outlets picked up on it. (Here’s Bloomberg’s take and here’s one from AllThingsD’s Kara Swisher).

But here’s the thing that really caught our attention: we couldn’t find a single other mention of this lawsuit in any of Yahoo’s previous filings. Think about that for a minute: they were handed a $2.7 billion judgement and it was never mentioned once in any of their filings? That judgement is equivalent to more than 10% of Yahoo’s market cap and represents and is roughly twice Yahoo’s cash generated from operating activities in 2011.

Since we read a lot of filings and often spend a good chunk of time poking through the “legal issues” section, we know that if a company has an inkling that a lawsuit isn’t going their way, they usually let investors know about it. It’s often buried and written about in some obtuse way. But it’s still in there.

Which raises an interesting question: why wasn’t their any prior disclosure in Yahoo’s filings about this particular lawsuit? There’s really only two explanations. Either Yahoo’s lawyers were totally blindsided and underestimated the risk from this lawsuit or they purposefully chose to leave it out of their filings. I’m hoping for Yahoo’s sake that it’s the former and not the latter.

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Despite fewer posts, we’re not taking it easy this December. We continue to work on a number of changes to the site after buying it back from Morningstar and expect to roll them out early next year. We’ll be giving footnotedPro subscribers a preview in a few weeks and think you’ll be as excited about the changes as we are.

Posted in: Legal

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Companies Mentioned: Yahoo! Inc.,
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