Yahoo Investors on Microsoft Deal: Do Not Want

Published on July 29, 2009
by John Paczkowski

yhoomsftYahoo CEO Carol Bartz says the company’s newly inked search advertising pact “comes with boatloads of value for Yahoo (YHOO),” but you wouldn’t know it to look at the company’s share price. Yahoo’s shares slipped into the mud on the deal’s announcement, declining nearly seven percent to $16.07 in early trading. Meanwhile, Microsoft’s (MSFT) shares were up 0.98 percent to $23.70.

Apparently, investors aren’t too keen on the deal. Why? A number of reasons, according to Needham & Company analyst Mark May. “While the details of the deal can confuse the risks and benefits to Yahoo!, this deal ultimately means that Yahoo! is outsourcing search to Microsoft,” May told Digital Daily. “If you you’re bullish on search, and on the power of having combined strength in both search and display, I think you’d have to view this deal as negative for Yahoo! and positive for Microsoft.” May noted that there are a number of reasons for Yahoo investors to look askance at this deal. Among them:

  • There’s no upfront payment.
  • The deal requires regulatory approval and isn’t expected to close until 2010.
  • The companies don’t expect to see the full benefits of the deal until 24 months after regulatory approval.
  • While the companies claim Yahoo “will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers,” most of the value is and will be derived via the self-service channel–which Microsoft will now control.
  • The deal could put Yahoo!’s affiliate/syndicated search business at risk.
  • The deal’s 10-year length may put Yahoo at Microsoft’s mercy given that there’s only one other supplier–Google (GOOG).

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