Yahoo seeks Google's aid after Microsoft talks die

Staff and agencies13 June, 2008
By MICHAEL LIEDTKE, AP Business Writer 24 minutes ago
SAN FRANCISCO - Yahoo Inc. became Microsoft Corp.‘s takeover prey largely because Google Inc. established such a commanding lead in the Internet‘s lucrative search advertising market.
Yahoo announced its decision to let Google handle some of its advertising sales late Thursday, just a few hours after revealing it unsuccessfully tried to persuade Microsoft to renew its previous offer of $33 per share. The snub caused Yahoo to conclude that there is no hope for any kind of deal with Microsoft.
Yahoo shares plunged $2.63, or 10.1 percent, to finish Thursday at $23.52 and shed another seven cents after the market closed.
Google already holds about 75 percent of the $11 billion search advertising market in the United States with Yahoo a distant second at 9 percent, according to the research firm eMarketer Inc.
The outcry already has drawn the attention of U.S. Sen. Herb Kohl, chairman of the Senate subcommittee on antitrust, competition policy and consumer rights.
Yahoo and Google have voluntarily agreed to wait until late September to begin working together to give the government adequate time to review the arrangement. If it isn‘t blocked, the partnership could last for the next decade.
The Sunnyvale-based company also is trying to fend off a shareholder mutiny led by activist investor Carl Icahn, who has vowed to replace the company‘s board because of the way the directors handled the Microsoft negotiations during the past 4 1/2 months.
Icahn did not return phone calls seeking comment Thursday.
"If you are a Yahoo shareholder, you just have to be scratching your head right now," said Standard and Poor‘s equity analyst Scott Kessler.
After Yang took over the reins from Terry Semel a year ago, Yahoo‘s stock price fell from $28.12 to $19.18 at the time Microsoft launched its unsolicited takeover attempt in January.
Yang "has been slow to move, slow to act and it has cost shareholders as a result," Kessler said.
Many Yahoo shareholders blame Yang for letting his emotional attachment blur his judgment during the Microsoft negotiations.
Yahoo‘s board sent Yang and fellow co-founder David Filo to a pivotal May 3 meeting in Seattle to discuss Microsoft‘s oral offer to buy the company for $33 per share, up from its initial bid of $31 per share. After Yang demanded $37 per share, Microsoft CEO Steve Ballmer withdrew the offer.
In recent weeks, Ballmer has been trying to buy Yahoo‘s search engine instead.
Yahoo concluded that its search engine was too important to sell piecemeal.
Without explaining its logic, Microsoft said it believed a deal involving Yahoo‘s search engine would have been more valuable to Yahoo than if it had bought the entire company at $33 per share. The Redmond, Wash.-based software maker said it remains open to buying Yahoo‘s search operations.
Yahoo‘s deal with Google includes an escape hatch should Microsoft or another suitor buy the company. If Yahoo is sold, Google would receive a termination fee of up to $250 million.
That clause could still raise hope that Icahn might be able to renew the Microsoft talks if he can win control of Yahoo‘s board.
The deal shapes up as a major victory for Mountain View-based Google, which didn‘t want Yahoo to fall into Microsoft‘s clutches.
"I am happy to be helping them to stay independent," Google co-founder Sergey Brin said in a Thursday interview.
With a Yahoo deal off the table, Microsoft could set its sights on a smaller acquisition that still might help its unprofitable Internet operations. Analysts have cited Time Warner Inc.‘s AOL, Internet software service provider Salesforce.com Inc. and leading online social networks, News Corp.‘s MySpace and Facebook Inc. as possible targets.
The Google partnership expands upon a two-week trial conducted in April while Yahoo was trying to pressure Microsoft into raising its bid. The tests confirmed Google‘s technology would generate more revenue for Yahoo than its own system, which cost more than $2 billion to acquire and improve.
Nevertheless, Yahoo still intends to use its own search engine to distribute some ads and process all search requests. Working with Google will give Yahoo "the best of both worlds," Yahoo President Sue