Documents unsealed in a court case have shown that Yahoo turned down an offer from Microsoft in 2007 valuing the company's shares at $40 each.
The papers came to light after a case filed by the Police & Fire Retirement System of the City of Detroit and the General Retirement System of the City of Detroit.
The documents (PDF) reveal that Microsoft offered $40 per share in January 2007, and that the Yahoo board cleared the rejection of the offer.
But the documents also purport to show attempts by Yahoo co-founder and chief executive Jerry Yang to stifle any possible deal with Microsoft.
These include promising generous benefits to key staff who would leave in the event of a takeover, and his general negative attitude to Microsoft.
"Yang's defensive and self-interested conduct was grossly disproportionate to any threat arguably presented by Microsoft's proposal for a friendly merger," the papers read.
"There is no question of Microsoft's ability to finance the transaction, or its sincerity in seeking a negotiated position. Yahoo's poison pill precluded a hostile bid."
Yahoo opposed the release of the documents, and they will come as a deep embarrassment to the board since the company's share price is currently averaging around $26.
Billionaire investor Carl Icahn is in the middle of a hostile fight for boardroom control of Yahoo, and has already said that he aims to expel several board members for what he describes as mismanagement.
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