Microsoft and Yahoo confirm 10-year search advertising deal

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Yahoo takeover:
I'll oust founder Yang from board, warns dissident Icahn

June 4, 2008 -- Yahoo's co-founder Jerry Yang will be ousted from the board of the company he founded, dissident investor Carl Icahn said last night, as the embattled firm faced a showdown with frustrated shareholders.

Icahn has proposed an alternative slate of directors that would approve a takeover of Yahoo by Microsoft and could be voted in at the annual shareholder meeting now set for August 1.

The billionaire investor said in an interview with today's Wall Street Journal that he was "amazed at the lengths" that Yang and the board had gone to avoid a Microsoft takeover.

"Nobody ever understood the magnitude of what Yahoo did to do avoid making a deal," added Icahn.

"How can Yahoo keep saying they're willing to negotiate and sell the company on the one hand, while at the same time they're completely sabotaging the process without telling anyone?"

"In my opinion, you might have to get rid of Jerry and part of the board to bring back Microsoft."

Icahn claimed Microsoft executives will have lost confidence in the current Yahoo board to pursue the necessary regulatory approval for any deal.

"Microsoft will have to tie up $45bn for an entire year, and they might want to do it with someone they trust," he said.

Icahn also referred to court papers made public in the US this week that showed the Yahoo board drafted a press release rejecting a Microsoft offer three months before it was officially put forward.

The lawsuit also said the Yahoo board approved an expensive employee severance scheme that would complicate a Microsoft takeover by paying between four and 24 months' salary and benefits to staff who leave or are fired "without cause" after a merger.

Icahn said the plan would have cost Microsoft an additional $2.5bn, although Yahoo put the cost between $462m and $2.1bn.

In a statement issued last night, Yahoo said its board of directors, including Yang, had been "crystal clear that it would consider any proposal by Microsoft that was in the best interests of its shareholders".

"To that end, Yahoo has engaged in extensive discussions with Microsoft over the last several months, culminating in Microsoft's decision not to pursue an acquisition of Yahoo. Mr Icahn's assertions ignore this clear factual record," the statement added.

The company last night confirmed that the annual shareholder meeting would be held on August 1 after postponing from the original date of July 3.

Microsoft withdrew its $47.5bn unsolicited takeover for Yahoo on May 3, but talks have since renewed over a smaller deal where Microsoft would take control of Yahoo's display advertising.

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Yahoo: Microsoft talks are over

June 12, 2008 -- The Microsoft-Yahoo deal is seriously, totally dead.

After more than four months of drama and intrigue, Yahoo said talks with Microsoft about a possible merger have "concluded."

The final straw may have been a June 8 meeting, in which Microsoft explicitly said it has no interest in pursuing an acquisition of the company, even at the previous price range suggested.

And a partial deal - under which Microsoft would buy Yahoo's search business - just wouldn't cut it, according to the official Yahoo statement.

"With respect to an acquisition of Yahoo!'s search business alone that Microsoft had proposed, Yahoo!'s Board of Directors has determined, after careful evaluation, that such a transaction would not be consistent with the company's view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo! stockholders," a company statement said.

Microsoft reiterated that it has no interest in outright acquiring Yahoo, but it says it has offered an "alternative transaction," for which the door is still open.

"In the weeks since Microsoft withdrew its offer to acquire Yahoo!, the two companies have continued to discuss an alternative transaction that Microsoft believes would have delivered in excess of $33 per share to the Yahoo! shareholders . . . As stated on May 3rd and reiterated on May 18th Microsoft was not interested in rebidding for all of Yahoo!. Our alternative transaction remains available for discussion," an official Microsoft statement said.

Still, Yahoo pursued its own "alternative transaction:" Just hours after it announced it had "concluded" talks with Microsoft, it announced plans for a long-term agreement with Google, under which Google ads will be displayed alongside Yahoo search results. Financial terms were not disclosed.

We have to imagine that Carl Icahn is quietly weeping over a pile of Yahoo stock certificates about now. The corporate raider spent up to a couple billion dollars buying a position in Yahoo, on the bet that he could get the two companies back at the negotiating table and make a bundle after the deal was sealed.

But this afternoon, there was a bloody sell off of Yahoo shares - the stock fell more than $3, or 12 percent, when last we checked, while Microsoft shares were up more than a buck, or roughly 4 percent.

How much lower could the stock go? Cantor Fitzgerald analyst Derek Brown thinks $24 per share is a fair valuation for Yahoo, based on the assumption that it remains independent.

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Microsoft and Yahoo rumoured to be closing in on deal

July 17, 2009 -- After almost 18 months of increasingly bitter negotiations, Microsoft is said to be closing in on a deal to buy technology rival Yahoo's web search business. Several reports emerged late on Thursday suggesting that late-stage talks were under way between the two companies, opening up the distinct possibility that Microsoft could finally take control of Yahoo's search engine division.

An analyst with institutional investor ThinkEquity was quoted by investment website 24/7 Wall Street as saying a deal was "imminent", while sources told influential Silicon Valley blog All Things Digital that an agreement was close to being completed.

It is not clear what the precise terms of the deal on offer are, but according to 24/7 Wall Street, it could see Microsoft shell out around $3bn (£1.8bn) to take over Yahoo's search advertising operation. The deal, it suggests, would also see Microsoft agree to share revenue from the search business with Yahoo for several years.

Such a pact would bring to an end the tortured negotiations between the two companies, but it would be an incredible climbdown for Yahoo – which turned down the possibility of far more money when Microsoft launched an unsolicited $45bn bid to buy Yahoo in its entirety last February.

That offer was largely seen as an attempt by Microsoft to gain control of its rival's search business, since the Seattle software giant has been desperate to increase its share of the lucrative search advertising market for several years. But Yahoo rejected it, saying that it believed it was worth far more money. In the interim, relations between the two companies have been cool – and both sides have rejected rumours of reported negotiations.

However, with the two companies' chief rival, Google, appearing not only increasingly powerful but also apparently immune to the worst effects of the recession, things could be changing once again. Microsoft's attempt to claw back market share with its relaunched search engine – now called Bing – has failed to make immediate inroads, leaving the Windows giant still looking for a way to make its mark in the industry.

Taking control of Yahoo's search business would give Microsoft almost 30% of the American market, more than trebling its sphere of influence. According to figures from ComScore, Google controls around 65% of the search market in the U.S., with Yahoo 19.5% and Microsoft trailing in third with a little over 8%. Internationally, Google is even stronger. Such a deal would be a further hammer blow to the reputation of Yahoo co-founder Jerry Yang, who led the charge against Microsoft and sparked a war of words with rival CEO Steve Ballmer.

Since the negotiations between the two collapsed late last year, however, Yahoo has brought in a new CEO, Carol Bartz – who may take a more pragmatic view of the situation given Yahoo's financial struggles. The company is due to release its latest quarterly results next week, and may be hoping that any agreement with Microsoft could take the edge off a disappointing fiscal period.

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Microsoft and Yahoo confirm 10-year search advertising deal

July 29, 2009 -- Microsoft and Yahoo have confirmed a 10-year global search advertising deal forecast to generate income of $500m (£305m) a year. The deal gives Microsoft backing for its recently relaunched Bing search engine, and it gives Yahoo much-needed cost savings and income during the recession. Yahoo estimates the agreement will boost its operating income by $500m and cut capital operating costs by $200m.

Before the deal was announced, it was reported that Yahoo had wanted an upfront payment of billions of dollars. Instead, Microsoft agreed to a revenue-sharing arrangement. Microsoft will pay "traffic acquisition costs" amounting to 88% of search revenue generated on sites owned or operated by Yahoo over the deal's first five years. It will also guarantee a minimum "revenue per search" on Yahoo sites for the first 18 months after the service is launched in any given country.

Microsoft will handle the search technology, while Yahoo will provide the search-advertising sales force. Although Microsoft will license Yahoo's search technologies, its own recently launched Bing service will be "the exclusive algorithmic search and paid search platform for Yahoo sites". Alongside the work of Yahoo's sales teams, Microsoft's AdCenter platform will handle self-service advertising sales. The deal only covers search advertising, and the two companies will retain separate display advertising businesses. To allay privacy fears, Yahoo and Microsoft are promising to share no more data than is necessary to "operate and improve the combined search platform".

Firing a shot at search giant Google, they said the deal would give advertisers another choice, freeing them from the need "to rely on one company that dominates more than 70 percent of all search". Google still dominates search in many markets, and Microsoft hopes that the deal will give it and Yahoo the scale to compete, according to its chief executive, Steve Ballmer. "Through this agreement with Yahoo, we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company," Ballmer said.

The deal will be seen as a significant victory for Yahoo's new chief executive, Carol Bartz. She was hired in January, when the company's co-founder, Jerry Yang, stepped down after rejecting a buyout offer from Microsoft. The deal will still have to be approved by regulators. But while some analysts have said that Google could cry foul, its own market position makes it a more likely target for regulators' suspicions than this partnership. Barring any regulatory hurdles, the Yahoo and Microsoft expect to close the deal in early 2010.