Yahoo Breaks Off Talks With Microsoft, Strikes Deal With Google

Santa Clara (CA) - Yahoo says it has completely broken off talks with Microsoft and that there will be no cooperation between the two companies. The news sliced 10% off Yahoo’s stock yesterday as shares fell to $23.52. But in other news, Yahoo announced a long anticipated partnership with Google that would let the rival search engine place text-based ads onto Yahoo’s website.

The new agreement lets Google place context sensitive ads (the ones you typically see on the sides of many web pages) onto Yahoo’s pages in the United States and Canada. Yahoo has the discretion in displaying Google ads on any of its sites.

The deal is for four years with two three-year renewals and is anticipated to earn Yahoo from $250 to $450 million in the first year. Both Google and Yahoo will share a percentage of revenue for any click-thrus on the ads. Of course, it will take up to three and a half months before anything starts because both companies have to wait for Justice Department approval over anti-trust issues.

Carl Icahn owns ten million Yahoo shares and options for nearly 50 million shares say he won’t oppose the Google deal, but he still plans on ousting Yahoo founders from the board at the next shareholders meeting. Icahn stands to lose hundreds of millions of dollars because he purchased most of his shares at around $25. All of his options could expire worthless, depending on the strike price.