Yahoo shareholders are suing the company over the failure of the Microsoft deal.

The three-month courtship of Yahoo by Microsoft has ended, at least for now, and not everyone is happy.

Two public pension funds from the city of Detroit plan to expand a complaint against Yahoo CEO Jerry Yang and other members of the Yahoo board of directors, saying they failed to act in the best interest of shareholders in rejecting the Microsoft bid to buy Yahoo.

The original lawsuits were filed separately on March 5 over what the pension funds deemed an unreasonable attempt by the Yahoo management team to thwart an acquisition by Microsoft that would have paid shareholders a 62 per cent premium over the Yahoo pre-bid stock price.

The lawsuits have been combined into a general class-action lawsuit, and lawyers representing the pension funds say they will seek damages for the loss of shareholder value allegedly caused by Yahoo management over the failure of the bid this weekend.

The actions taken by the Yahoo CEO this weekend confirm that the company's board of directors pursued all manner of value-destructive third-party deals to fight off the Microsoft bid, lawyers representing the Police & Fire Retirement System of the City of Detroit and the General Retirement System of the City of Detroit said in a statement Monday.

Those actions constitute a breach of fiduciary duty, they allege.

Microsoft announced its original $44.6bn acquisition bid on February 1, sending Yahoo shares up as high as $29.83 each on the day, a huge increase from $19.18 before the offer. Yahoo first rejected the bid on February 11, but did enter talks with Microsoft. In the end, the deal fell apart despite a sweetened offer of $33 per share from Microsoft.

Yahoo shares fell 15 per cent on Monday to $24.37, after dropping to as low as $22.97 earlier in the day.

Yahoo appears to have sought several alternatives to the Microsoft deal, including reportedly trying a tie-up with Google on its search advertising business. Lawyers for the pension funds, Bernstein Litowitz Berger & Grossman LLP, say attempts at such deals show that Yang never negotiated with Microsoft in good faith.

Yahoo did a two-week test run of Google ads in April, but hasn't disclosed the results.

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