YAHOO TRIED to close the book on Microsoft's attempted takeover of the internet company yesterday by concluding a non-exclusive advertising deal with Google.
Under the terms of the agreement, text advertisements supplied by Google will appear beside Yahoo's search engine results and Google will also supply advertising which will appear on certain Yahoo web sites. Yahoo said it believed the deal could generate revenues of $800 million (€520.7 million) a year and in the first 12 months is expected to generate cash flow of $250 - $450 million.
Despite the non-exclusive nature of the deal, US anti-trust regulators said they would be looking at the details of the relationship. Senator Herb Kohl, who chairs the Senate Antitrust subcommittee, said the deal raises important competition concerns.
"The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further in the antitrust subcommittee," said Mr Kohl.
Microsoft responded by saying its alternative deal, which values the company at more than $33 a share but does not involve a full takeover, "remains available for discussion". Sources close to the talks said Microsoft had recently offered to pay $35 a share for a 16 per cent stake in Yahoo.
Yahoo's stock, which had been changing hands around the $26 mark all week, was selling for as little as $22.20 at lunchtime in New York yesterday. Microsoft's stock was up almost $1 at $29.01 following the announcement, signalling that while the agreement with Google is a blow to Microsoft, investors do not feel it will help Yahoo turn around its fortunes.
Some analysts question if Yahoo has tacitly given up its own claim to search. "Google basically just got a great way to make money off its chief competitor," said Forrester's Shar VanBoskirk. "The grander strategic question for me is why turn down one competitor and let your other, bigger competitor actually into your house so they have visibility into what you are doing?"
Others said Yahoo must be getting a greater cut of the advertising split with Google, possibly as high as 65 to 95 per cent. Google has similar deals with Time Warner's AOL and IAC/InterActive- Corp's Ask.com.
What stood out, as Yahoo and Google separately outlined their strategies with various analysts, was the accord created between the two in talks that began in February, shortly after Microsoft made its offer for Yahoo public.
Google chief executive Eric Schmidt described holding "entertaining" meetings with Yahoo chief executive Jerry Yang. Google co-founder Larry Page said he was moved to form the company by watching the success of Yang and his Yahoo co-founder, David Filo.
The amiable tone may not satisfy investors already suing Yahoo over its handling of talks with Microsoft, or stem a proxy battle being waged by billionaire Carl Icahn.
- (Additional reporting Reuters)
