Yahoo Cuts Deal with Google
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After failing to come to terms with Microsoft, and with antitrust regulators hovering in the background, Yahoo has gone and cut that death-defying deal on search advertising with arch-rival Google saying the agreement could clear $800 million in annual revenues.
The deal is non-exclusive, applies only to paid search and
text ads, and is supposed to run for four years with an option to renew for up
to 10 years.
Any change in Yahoo ownership during the next two years
would nix it provided the acquirer antes up a $250 million termination fee,
which may give Carl Icahn and his proxy fight to dislodge the Yahoo board some
Yahoo said it should see $250 million-$450 million in
incremental operating cash flow in year one. It declined to detail the revenue
In a statement that should enrage Yahoo stockholders
Microsoft claimed that the deal it offered Yahoo to buy just its search
business would have brought investors better than $33 a share and still left
Reuters said Microsoft offered $35 a share for a 16% equity
stake in Yahoo as part of the alternative deal.
According to the deal with Google Yahoo gets to decide which
search terms are used and where the Google ads run alongside its search results
and some of its web sites in the US and Canada.
They ran a successful test in April. The new arrangement
kicks off in September after Yahoo emerges from its shareholders meeting and
possible showdown with Icahn August 1.
The pair claims that the deal doesn’t need regulatory
approval, but is voluntarily giving the Justice Department three-and-a-half
months to review it. The European Commission doesn’t come into the picture at
Microsoft of course has claimed that such an arrangement
would be anti-competitive. Regulators themselves have voiced concern. The
chairman of the Senate antitrust subcommittee said it would review it.
Google CEO Eric Schmidt suggested the Yahoo-Google deal was
a new competitive model.
To make it easier for regulators to swallow Yahoo and Google
ads compete against each other auction-style. Being non-exclusive is also
supposed to make it palatable for regulators to digest.
Google currently controls 76% of US paid search; Yahoo’s got 7%.
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