This Looks Bad for Yahoo! Management

 | Dec 03, 2012 | 12:05 PM EST
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There's nothing like a little late Friday afternoon 8-K disclosure. Just casually drop a little note to investors saying: "Whoops, we forgot to tell you that we might have a big legal exposure that could reduce our cash."

That's essentially what happened last Friday with Yahoo! (YHOO), when the company said a Mexican court had ordered it to pay $2.75 billion to a former Mexican yellow-pages partner dating back 10 years.

What's disappointing for investors is that Yahoo never previously made mention of this legal issue.

As Michelle Leder of Footnoted said this morning, what seems to have happened here is one of the following: Either Yahoo was clueless and had no idea what was going on down Mexico way, or it deliberately failed to disclose this potential liability risk in its prior SEC filings.

Either way, it doesn't make Yahoo look good, and ditto for new CEO Marissa Mayer.

One point here is that longtime Yahoo general counsel Michael Callahan recently left the company. He has been a very steady-Eddie figure at Yahoo over the years in his role, and I have a hard time believing Callahan deliberately hid this.

There's a good chance that this judgment will get appealed, drag out over time and get worked down to a smaller number. That's what I'd expect, anyway, from Yahoo's legal team.

Either way, it was a hassle for Yahoo investors Monday when the rest of the market was up earlier. However, the indices have retreated as the morning has progressed, and Yahoo has strengthened. It's probably a good day for those enlisted with buying back Yahoo shares on behalf of the company to hit the bid.

Most of the sell-side on Wall Street has been surprised by this verdict. It would be nice for Yahoo to come out today with some more details on the background of this particular lawsuit, and what the company has known at different points in time. That would give investors some more comfort.

That said, though, the stock has been very resilient this morning. It's recovered most of its very early losses on the day.

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