NEW YORK (Reuters) - Microsoft Corp and Yahoo Inc have agreed to a 10-year online search and advertising partnership, in an attempt to rival Google Inc..
Yahoo shares extended losses in pre-market trade, dropping 6.1 percent to $16.17 after the announcement. Microsoft shares slipped 0.1 percent to $23.44.
The deal will boost Yahoo’s annual operating income by about $500 million and capital expenditure savings of $200 million, the company said in a joint statement on Wednesday.
MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO.
“The major question has been whether Microsoft will buy them (Yahoo) out completely. It has been arbitraged in the market, or priced-in. Those that were looking forward to a takeout, the deal today was rather disappointing. The 10-year pact, it’s not a bad thing, it’s not as good as what investors expected.”
“Looks like it is a good deal. There are a bunch of different pieces here: There’s an 88 percent revenue share in years one through five, that’s a positive; There’s guaranteeing Yahoo owned and operated revenue per search for the first 18 months, that’s a positive.”
“The one slight disappointment was there was some expectation of an upfront cash payment, which isn’t happening here. But, overall, it’s a big positive for two companies that have been struggling to keep up with Google. This consolidates their resources and allows them to make a more concerted push as the No. 2 entity, which is definitely going to be a positive.”
He added the Yahoo stock slide is “a knee-jerk reaction” probably based on initial disappointment over the lack of upfront payment.
“(The microsoft-yahoo deal) is probably already priced in the market. I don’t see it having a major impact on the averages. We were expecting to point toward a lower opening.
“Looks like a real positive. Looks like it’s twice as big as the original Google deal, it’s 10 years and probably about double EBITDA the original Google deal. At first estimates, looks like it’s about $5 a share for Yahoo. Short term, it looks like it’s really in Yahoo’s favor. Longer term, it benefits both companies.”
“You feel like this is something they had to do. ... I mean, independently, they’re bit players. Together, they might offer a combination that might be appealing to an advertiser.
“10 years? wow! ... So Yahoo becomes part of Bing? Yah-Bing?
“I think it’s the necessary deal. My sense of it is, just looking at these bullet points, this isn’t something either company really loves because we know Microsoft wanted to buy Yahoo outright. I think Carol Bartz is far too smart for that.
“They both win. Microsoft had to do this. If it wanted to get competitive with Google in search advertising, it had to get scale, and the easiest way to get scale is to get Yahoo.
“If I’m reading this directly, Yahoo keeps a large amount of independence. I think it did this deal on its terms. That is something I don’t think we would have said about Yahoo a few months ago, so kudos to Carol Bartz. She’s making Yahoo a much better player than it was.”
Reporting by Angela Moon, Paul Thomasch, Robert MacMillan; Compiled by Edward Tobin