Yahoo to appeal $2.7 billion lawsuit

Yahoo Inc believes it has “numerous” grounds to appeal a Mexico City civil court’s $2.7 billion preliminary judgment against the company, including both errors in procedure and in application of law, a person familiar with the matter told Reuters on Monday.

The ruling in the case, which involves allegations of breach of contract related to an online yellow pages listings service, was made by the 49th Civil Court of the Federal District of Mexico City, Yahoo said on Friday.

The case has perplexed many investors and tech-industry observers since Yahoo disclosed it, particularly given the large value of the “non-final” judgment.

The lawsuit was brought by Worldwide Directories S.A. de C.V. and Ideas Interactivas S.A. de C.V. against Yahoo and Yahoo de Mexico, Yahoo said.

The companies could not be reached for comment, although Carlos Bazan-Canabal, who describes himself as a founder of Worldwide Directories, told Reuters via email that he had contracted a U.S.-based law firm to handle the Yahoo case.

He declined to comment further on the matter.

Bazan-Canabal operates a number of web sites. He said on one that he joined Yahoo in 1999, adding that he is a former executive of Yahoo Mexico, and that he helped to launch that company. Yahoo could not immediately be reached for comment on this.

The details of the suit remained unclear on Monday. Documents from local courts in Mexico are not available for public consultation. Yahoo declined to comment.

Yahoo signed a commercial relationship with the two companies in 2002, the person familiar with the matter said. Yahoo terminated the relationship with the companies in 2009, the person said.

Yahoo’s appeal is expected to be heard by a panel of three judges in a superior court in Mexico City, the person said who was not authorized to speak publicly on the matter. It was not clear when Yahoo might file its appeal.

Yahoo’s most recent 10Q filing, which lists major ongoing legal proceedings, makes no mention of the lawsuit.

“We believe the $2.7 billion figure appears high based on the seemingly small size of Yahoo’s business in Mexico, but we believe shares could trade off modestly on the news,” wrote JP Morgan analyst Doug Anmuth in a note to investors following Friday’s announcement.

“It’s not clear how the Mexican court arrived at the $2.7 billion figure, but it would represent 40 percent of our projected 2012 year-end cash balance for Yahoo,” and equate to about $2.30 per share, he wrote.

Shares of Yahoo closed Monday’s regular session down 1.2 percent, or 22 cents, at $18.55.

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Yahoo to appeal $2.7 billion lawsuit