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Yahoo Google Partnership Announced

Friday, June 13th, 2008


Icahn must be livid. Yesterday the joint announcements were made that there would be no deal with Microsoft, not now, not ever. No take-over, no merger, no partial acquisition of any kind. It’s over.

Yahoo has signed with Google, to extend last month’s two week advertising run into a distribution partnership. Yahoo will be outsourcing a portion of its search ad inventory to Google, as well as display Google ads beside their own search results. Yahoo gets to pick when and where such ads will appear.

The partnership is likely to sound the death knell for Carl Icahn’s bid to take over control of Yahoo after negotiations with Microsoft broke down last month. He had hoped to overturn the current board and replace the members with a hand picked team with the sole initiative of pushing through a sale to the Redmond software giant, but the deal with Google effectively kills any hope of such a prospect.

Yahoo expects an increase in revenue of over $800 million a year, with a $250 to $450 million in increased cash flow just in the first 12 months of the agreement. An initial term of 4 years was agreed upon, with an option for Yahoo to approve two additional 3 year terms at their own discretion. If either party undergoes a change in ownership, the agreement can be terminated, and here is a final nail in the Microsoft – Yahoo coffin: if Yahoo initiates such a termination within 24 months they will cough up a hefty $250 million.

Yahoo and Google have agreed to delay implementation of their partnership for three and a half months to give the DOJ time to review the deal and alay any anti-trust issues. This should give them time to hammer out the details on another aspect of the partnership; an interoperability between their instant messaging services. It’s truly going to be a Google-Hoo!

So where from here? Microsoft is continuing to branch out with acquisitions in other areas while Google gets still another piece of the pie. Yahoo’s much anticipated stockholder meeting in August seems likely to be anticlimactic, as Icahn’s entire platform has been rudely yanked from beneath him.

Interestingly, several of Yahoo’s top execs left the company over the past few days; Jeff Weiner’s resignation was almost in tandem with another tendered by Dr. Usama Fayyad, another VP from Yahoo’s 15-member management team. Jeremy Zawodny, a long time developer, also turned in his Purple badge. Fayyad’s possible intent to return to former employer Microsoft is an added blow.

Did they know what was afoot? Or was it just coincidence? And will any other brass be jumping ship? Yahoo seems completely unconcerned and wishes them well, but one wonders just how many top level execs they can afford to lose.

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