Yahoo moves closer to Google outsourcing deal

Source: Technology Digital

Date :17/04/2008 03:48:16

Web giant Yahoo Inc. is expected to move its web search advertising to market leader Google Inc. after successfully testing Google’s service.

In a move that will apply pressure on Microsoft Corp. to increase its bid, Yahoo is likely to take the first significant step in creating a three-way venture with Google and Time Warner Inc. AOL. At present, Microsoft’s bid for Yahoo stands at $31 per share – an offer that Yahoo claims severely undervalues the company.

Outsourcing web search advertising to Google would allow Yahoo to focus on its online branding advertising business, which is where the company generates the majority of its revenue. The two companies announced a limited ad test last week, which appears to have become a mutually beneficial arrangement.

Citigroup analyst Mark Mahaney has indicated that the deal would boost cash flows for Yahoo by 25 percent, with an increase in the company’s valuation of up to $7 billion.

Mahaney was very clear in his appraisal: losing Yahoo to Google will not be an option for Microsoft, so it is extremely likely that an increased offer will appear before too long.

Crucially, he expects Google to be the main benefiter from this situation, either through increased revenues from Yahoo search, or the merging of its two main competitors which will lead to complications surrounding acquisition logistics for at least twelve months.

April 17, 2008