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Yahoo nears deal with Google on search ads

17 апреля 2008

Yahoo moved closer to outsourcing its search advertising to Google Inc. after an initial test of the system yielded what the two firms deemed positive results, people familiar with the matter said.

A partnership could give Yahoo some needed leverage as it tries to ward off an unwelcome $42 billion bid from Microsoft Corp. Some view the potential pact as mere gamesmanship, particularly in light of antitrust concerns that a Google-Yahoo linkup would likely raise.

A search-ad deal could complicate Microsoft's efforts but is unlikely to derail its plan. Yahoo could simply pull out of the partnership should it agree to be taken over by Microsoft, people familiar with the matter say.

Still, a Yahoo partnership with Google is now increasingly likely, the people said. Yahoo and Google said last week they would undertake the preliminary test in order to evaluate the potential of a broader search-ad outsourcing arrangement.

Such a deal could increase Yahoo's cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney. The reason is that Google's system generates significantly more revenue for each search query than Yahoo's does.

The overlap between Google and Yahoo could make it hard to get a deal past regulators, analysts say. But the two are exploring ways to address potential regulatory problems, people familiar with their discussions say. Possibilities include limiting the partnership to specific groups of search queries or regions, for example.

A deal with Google could make it easier for Yahoo to undertake a separate transaction it has been deliberating with Time Warner Inc.'s AOL. Yahoo has been in talks with Time Warner about merging with AOL. Time Warner would receive a stake of about 20% in the merged entity in return.

But Yahoo has yet to commit to a deal with AOL and though talks between the two continue, Yahoo's board could risk a revolt by shareholders if it chose that path over a tie-up with Microsoft.

Some big Yahoo shareholders have said they would welcome a Microsoft deal for a price higher than the $31 a share it offered Jan.
31. A decline in Microsoft's shares has reduced the cash and stock-offer's value to $42.1 billion, or $29.26 a share.

Microsoft and Yahoo executives have met on at least two occasions but failed to agree on a framework for formal negotiations. Microsoft wants Yahoo to name its price. But Yahoo has been unwilling to set a ceiling and wants Microsoft to raise its original offer before agreeing to talks, people familiar with the matter say.

A break in the standoff could come after Yahoo reports its first-quarter earnings April
22. A stronger-than-expected report could give Yahoo ammunition to argue that it should be valued at more than Microsoft has offered. Weaker results would bolster Microsoft's argument that Yahoo's value has fallen in the months since it first made its offer.

Источник: Total Telecom

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