Delaware Chancery Court Judge William B. Chandler III yesterday said he would approve the accord, which resolves investor lawsuits over Yahoo executives decision last year to rebuff Microsofts buyout offers. Shareholders sued after ex- Chief Executive Officer Jerry Yang rejected a bid by the worlds largest software company. Microsoft dropped a final offer of as much as $33 a share, or $47.5 billion, in June.

The settlement amounted to “an extraordinary victory” for investors seeking to remove stumbling blocks to an acquisition, said Joel Friedlander, a lawyer for two Detroit pension funds that sued over Yahoos handling of the Microsoft offers.

“We are very pleased that the settlement was approved because we believe it is in the best interests of the company and our shareholders,” Kim Rubey, a Yahoo spokeswoman, said in an e-mailed statement.

Sunnyvale, California-based Yahoo rose 52 cents, or 4.2 percent, to $13.05 in Nasdaq Stock Market trading yesterday.

Search Alliance Eyed

Yahoo executives said last month they are open to an Internet-search alliance with Microsoft to compete with industry leader Google Inc. Microsoft CEO Steve Ballmer signaled Feb. 24 hed be willing to work with Carol Bartz, Yahoos new CEO, to reach an agreement.

Ballmer and Bartz are under pressure to shore up their Internet search engines and online advertising businesses, which combined generated less than half of Googles revenue in the fourth quarter.

Ballmer has said for the past several months and repeated as recently as last week that hes no longer interested in purchasing all of Yahoo. Microsoft is interested in some kind of Internet search agreement with Yahoo, he said.

Shareholders who expect yesterdays developments to alter Ballmers thinking will be disappointed, said Brent Williams, an analyst with Benchmark Co. in New York, who rates Microsoft shares “hold.”

Minor Issue

“I cant imagine this would change their mind,” he said. This doesnt even come close to fixing the big issues Microsoft has with buying Yahoo. This has always been a minor issue.”

Google controls the Internet-search market in the U.S. with 63 percent of queries, according to ComScore Inc. of Reston, Virginia. Yahoos profit has dropped in 10 of the past 11 quarters.

The Detroit pension funds argued in the Delaware suits that Yang used Yahoos severance plan to thwart Microsoft by giving employees incentives to quit rather than work for a buyer.

The plan, approved by Yahoos board in the wake of Microsofts bid, served as a “quasi-poison pill,” investor advisory firm Glass Lewis Inc. said. A poison pill is a type of corporate-takeover defense.

The severance plan required that workers be paid if their jobs were eliminated or altered after a change in control of Yahoo. The company said the policy was aimed at retaining employees. Investors complained that it made Yahoo more expensive to acquire.

$1 Billion Severance

At a hearing in Georgetown, Delaware, yesterday, Friedlander told Chandler that the plan would have forced Yahoo to pay as much as $1 billion in severance if Microsofts bid had been accepted.

Friedlander also noted that Microsoft officials saw Yahoos revised severance plan as creating “bad retention,” according to court papers unsealed in the case.

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