While things have been pretty quiet on the Microsoft (NSDQ: MSFT) and Yahoo (NSDQ: YHOO) front (knock on wood: this looks to be a busy week), here’s an interesting note on the legal side of things: According to Yahoo’s own internal documents, reports AP, the expanded severance plan it announced in February would have cost Microsoft an extra $462 million - $2.1 billion over its initial $44.1 billion offer. The document was unearthed as part of a shareholder lawsuit which, in part, alleges that Microsoft could’ve offered more for the company had it not been for the severance plan. The full document can be found here (.pdf) (via TechTraderDaily). The internal Yahoo emails going over the severance math start on page 49 of the filing.

Update: The judge in this case also sent out a letter (.pdf) explaining the decision to open the filing, and it specifically addresses the the severance question: “Defendants argue that such excerpts, taken out of context, will prejudice Yahoo! in its upcoming proxy contest because such partial disclosure will create an incomplete record of the circumstances surrounding the adoption of the Yahoo! severance plans. Though I am cognizant of defendants’ concerns about plaintiffs’ use of information obtained in the course of discovery and plaintiffs’ apparent mischaracterizations of certain information, the proper remedy is for defendants to release the full text of any communications they believe have been taken out of context or selectively quoted to the public and to the Yahoo! shareholders.”

The meat of the plaintiffs’ severance charge can be found starting on paragraph 49 on page 18. The key charge: Microsoft had earmarked over $1.5 billion specifically for employee retention, but Yang didn’t explain this to Yahoo employees. Instead he pushed for an extremely aggressive severance plan, in a clear attempt to drive up the cost of the acquisition to Microsoft and to, in some case, make it more economical for employees to leave than to stay on post-acquisition.

Other complaints:

-- Microsoft offered $40 per Yahoo share back in January 2007, but it was rejected by then-CEO Terry Semel.
-- Following the collapse of the Microsoft offer, Yahoo rushed to schedule a shareholder meeting (that didn’t work).
-- The Google (NSDQ: GOOG) card (outsourcing search ads) was not on the table prior to the Microsoft offer, thus it’s alleged seem that this deal was purely of the poison pill variety.