Microsoft-Icahn Deal Sweetened By 2.3B, Rejected
It seems that the old saying, "truth is stranger than fiction", rings true yet again but depending on your perspective, Yahoo might actually be on to something. The recent offering from the Microsoft-Carl Icahn Dynamic Duo, that came in over the weekend, was tied up with less than a 24hr deadline ultimatum that was firmly underscored with a no-compromises tonality. In the deal, Microsoft was throwing cash around like only Microsoft can, with not only an equity investment of $3.9 billion but also a preferred debt purse of $2.8 billion as well.
But wait, behind door number 3 was a cool $2.3 billion in guaranteed annual revenue for search advertising for the next five years. Let's do the math, shall we? That's an $11+ billion dollar contract over five years and a healthy shot in the keel for the good ship Y! Then again, Icahn would be at the helm at that point, with Jerry Yang made to walk the plank.
"In a statement on Saturday, Yahoo said the Microsoft-Icahn proposal carried more complexity and risk than a search ad partnership it signed last month with Google Inc... Such an exclusive deal would have effectively outsourced to Microsoft all the advertising that Yahoo runs alongside its search results using its in-house Panama ad system.
Yahoo instead chose to sign a non-exclusive search ad deal with Google, which promises $800 million a year in revenue for Yahoo and leaves it free to seek similar search advertising partnerships with other companies..."
Let's face it folks, it's fairly well understood now that Yahoo would consider a buyout at the right price, which is probably around $33/share (Nasdaq - YHOO currently: $23.57). However, there is not much of an advantage for the company to lop off it's search advertising business, a sector that is healthy and poised for growth, along with a complete ousting of Yahoo's board. Not to mention the non-exclusive deal Yahoo signed with Google for $800 million/year in revenue, leaving the company free to roam the range for other advertising partnerships as well.
With all this money flying around it's easy to lose perspective. Is Yahoo playing it right after all? The public courtship is good business for its head-turning factor alone, with Microsoft relentlessly trying to get a slot on the dance ticket.