Page last updated at 23:07 GMT, Friday, 13 June 2008 00:07 UK

Investors doubt Yahoo deal merits

Yahoo office
Yahoo rejected a $47.5bn offer from Microsoft

Shares in Yahoo fell up to 7.5% on Friday, after some investors doubted the financial benefits of a tie-up with search engine giant Google.

Yahoo said the agreement to allow Google ads to appear alongside Yahoo search results could be worth up to $800m (410m) in additional revenue.

Some analysts suggest a deal with Microsoft may have been better for Yahoo shareholders.

Yahoo shares later recovered to finish broadly flat, while Google shares rose.

This week Yahoo spurned a Microsoft offer for its online search business.

The internet giant said it did not want to sell just that part of the business and had hoped to persuade Microsoft to revive its $47.5bn offer for the whole of the company, that Yahoo had earlier rejected.

Microsoft said in a statement on Thursday that it was no longer interested in buying Yahoo outright.

Instead, according to the Reuters news agency, it offered $1bn in cash to take control of the search business and a further $8bn for a 16% stake in Yahoo.

Citing sources familiar with the deal, Reuters suggested the Microsoft deal would have delivered $1bn in additional revenue for Yahoo every year from improved advertising rates.

Analysts suggest that Yahoo may face further legal action from shareholders unhappy at their handling of the Microsoft negotiations.

"We think at a minimum that the current deal will result in further lawsuits, which Yahoo will ultimately have to settle, further impacting the economics of the deal," said Jeffrey Lindsay, an analyst at Sanford C Bernstein.

'Review'

Yahoo's shares recovered towards the end of trading on Friday to close down five cents at $23.47.

Google shares however rose 3.4% to close at $571.51.

The agreement between Google and Yahoo will see Yahoo use the search engine giant's advertising technology.

It is expected to further bolster Google's position as the market leader, but the additional revenue will also be important for Yahoo.

"Microsoft walking from Yahoo should allow Google to continue to extend its lead in online advertising in the near-term," said RBS Capital Markets' analyst Ross Sandler.

"[And] at the same time, fortify Yahoo's position as the clear number two player," he said.

Google said it believes that the deal does not need regulatory approval, but that it would delay its start by up to three and a half months to give the US Department of Justice a chance to review it.

The Chairman of the Senate subcommittee on anti-trust, competition policy and consumer rights said it would be looking at the agreement.

"The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further," said Senator Herb Kohl.




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