Yahoo and Microsoft have ended months of deal talks yesterday as the web pioneer agreed to let archrival Google sell search ads on its site, the companies said.
Separate statements from Microsoft and Yahoo signaled a real rift between the two after their agonizing on-again, off-again talks, and Yahoo shares fell 10 per cent as final hopes of a full or partial acquisition faded for many.
Microsoft shares rose more than 4 per cent as investors showed relief that the company would not be paying too high a price for a deal they considered risky - and even though it faces the joining of forces of its biggest rivals on the web.
Yahoo said it had agreed to let Google put search ads on its site in what it called an $800 million annual revenue opportunity that would boost cash flow by $250 million to $450 million in the first 12 months.
The partnership is initially for three years but could last up to 10 if Yahoo decides to renew.
"Google has made an enormous gain strategically. This move might well have shut Microsoft out of the online space altogether," said Sanford Bernstein analyst Jeffrey Lindsay.
"Yahoo is being a reseller of Google whenever it makes sense, and that is likely to be a lot of the time, given how much more effective Google Web search ads have proven to be," Global Crown Capital analyst Martin Pyykkonen said.
The process is nonexclusive, meaning others could join in the bidding to place ads, a factor that could make a deal easier to pass regulatory approval. The companies agreed to wait 3-1/2 months for regulatory approval and to offer a way to end it if Yahoo is taken over.