Google + Yahoo = no MSN

Google and Yahoo signed an agreement yesterday that will potentially give Yahoo $800 million in extra annual revenue and $250-$450 million in additional operating cash flow; pending anti-trust review

The deal could go on for 10 years with an initial 4-year period and option to renew for two 3-year periods at Yahoo’s discretion. If the deal is canceled before the initial 4-year period, there is a $250 million penalty. That makes it hard for any deal with Microsoft because obviously, Microsoft would want to negate the arrangement with Google.

Yahoo also has an employee severance plan in place that would require payment of $2.4 billion in potential severance payouts to departing workers, making it too expensive for any future Microsoft deals. Yahoo investors are currently suing over this severance plan.

If the Google-Yahoo deal goes through, experts say there’s no hope for Microsoft in Search. Google co-founder Sergy Brin said, “We are very excited to be working with Yahoo and that Yahoo remains a very strong company.” Yahoo CEO Jerry Yang said, “Clearly, it’s time to move on.”

Yahoo will continue its regular search results and many of the PPC ads generated by Panama, but some search users in the US and Canada will also see Google ads that will give Yahoo a cut of the fees paid to Google by advertisers. Google ads will be placed next to selected Yahoo search results.

Google and Yahoo also agreed to combine their Instant Messaging platforms, and Yahoo may also help Google improve its display ad business.

Microsoft said in a statement that it is still open to its alternative offer to buy Yahoo’s search business; however Yahoo is not willing to sell the search business because it feels search is key to its display advertising business.

In the meantime, Icahn is still trying to replace the Yahoo board with his own group of nominees and has accumulated 10 million shares in Yahoo and has options to buy 49 million more. Yahoo’s Board meets on August 1.

Source: Seattle Post Intelligencer