Yahoo Strikes Ad Deal with Google

Following Yahoois news that it has formally ended buyout discussions with Microsoft, the Internet search company has now revealed that it struck a paid advertiser deal with Google. The 24-month agreement will place Google supplied ads along with Yahoois own Panama marketplace ads in the United States and Canada.

Yahoo President Sue Decker commented "This agreement provides a source of funds to both deliver financial value to stockholders from search monetization and to invest in our broader strategy to transform display advertising and advance our starting point objectives with users."

The deal lets Yahoo set which search terms will include Google paid search results, and which pages those results appear on. The company expects the agreement will generate between US$250 and $450 million in incremental operation cash flow.

The Yahoo-Google alliance will be yet another obstacle in financial mogul Carl Icahnis proxy bid to take over Yahoo. His one-track plan to gain control of the Internet search company to sell to Microsoft has been met with some resistance from investors, and suffered an additional setback on Thursday when Yahoo announced that any talks with Big Redmond were over.

Microsoft apparently told Yahoo that it had withdrawn its bid to buy all of the company, and Yahoo made it clear that it was not interested in selling its Internet search component.

"Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo, even at the price range it had previously suggested," Yahoo representatives said.

In a move that may have been aimed at souring Mr. Icahnis plan even more, Yahoo agreed to pay Google up to $250 million in early termination fees if control of the company changes within 24 months.

The double-blow will likely make a proxy battle for control over Yahoois board even less palatable to investors, and could ultimately leave Mr. Icahn both seeing red and in the red.

Even though Yahoo and Google have publicly announced their agreement, donit expect to see Google ads appearing in Yahoo search results for up to three and a half months. Both companies agreed to a voluntary pre-launch review of the deal by the U.S. Department of Justice.