Page last updated at 01:20 GMT, Friday, 13 June 2008 02:20 UK

Twists and turns of the Yahoo drama

By Maggie Shiels
Technology reporter, BBC News, Silicon Valley

Google conference
Yahoo will now be able to run Google ads alongside Yahoo ads
The Yahoo, Microsoft and Google negotiations have been like watching a drawn-out soap opera.

Finally, the curtain has closed on one major act of the saga now that both Yahoo and Microsoft have announced that once and for all no deal can be done between the two companies.

However, the twist to this tale is the news that Yahoo will partner up with rival Google to foster an alternative search advertising arrangement.

This story started back in January when Microsoft first launched a bid to buy the whole of Yahoo.

Months of talks ensued with Yahoo constantly turning down offers.

In the end, Microsoft walked away from the table in May after offering to buy one of Silicon Valley's first internet portals for $33 a share, which amounted to $47.5bn.

There were several reasons given at the time for the deal going sour, not least among them the fact that Yahoo co-founder and CEO Jerry Yang was looking for $37 a share.

It was too rich a price for Microsoft CEO Steve Ballmer who decided he did not want to buy the company at that price.

White Knight

What followed for Mr Yang was a public barrage of criticism and condemnation from a flurry of shareholders who believed that he had made a mistake by not accepting the Microsoft offer.

This agreement provides a source of funds... to invest in our broader strategy to transform display advertising
Sue Decker
Yahoo president

That led to billionaire financier Carl Icahn - who also believed the Yahoo board had erred in turning down Microsoft - to enter the picture by buying up millions of dollars worth of shares.

As a result, Mr Icahn has launched a bid replace the Yahoo board and Mr Yang with his own hand-picked team when shareholders meet at the beginning of August.

He also made it clear that Microsoft was his white knight and that if his bid to oust the Yahoo board was successful, he would try and resume talks with the Redmond software giant.

Some might speculate that Mr Yang and the Yahoo board were motivated to hang onto their jobs come August, but talks with Microsoft did resume.

This time Microsoft made it clear it did not want the whole company, but just part of it - the most lucrative part, its search engine which boasts more than 500m users worldwide.

Again talks got underway but again they proved fruitless and any purchase of Yahoo by Microsoft terminally bit the dust.

'Search monetisation'

Waiting in the wings the whole time has been Google. And now the world's biggest search engine has revealed it is teaming up with Yahoo.

A news ticker carries headlines about Yahoo and Google above a Yahoo billboard on 17 April, 2008 in New York's Times Square
The Yahoo-Google partnership is expected to add $800m a year

The two had dallied previously in a deal that saw Google run advertisements on Yahoo's search results.

That short affair led to the justice department calling into question the arrangement on anti-trust grounds.

Yahoo will now be able to run Google ads alongside Yahoo ads or other ad providers.

The partnership is expected to add $800m (400m) a year in revenues.

Yahoo president Sue Decker said: "This agreement provides a source of funds to both deliver financial value to stockholders from search monetisation and to invest in our broader strategy to transform display advertising and advance our starting point objective with users."

Shareholders reacted by selling Yahoo shares which dropped around 10% of their value, closing at $23.52.

Yahoo and Google have said they will hold off for three months to allow regulatory authorities to review the arrangement.

All eyes are now back on Microsoft, which has clearly drawn a line under the whole affair but still has nearly $50bn burning a hole in its pocket.

The smart money says the firm will start making a series of acquisitions to help get it into the search market in an effort to make a dent in the 75% plus share that Google holds.

Meanwhile Mr Icahn will be counting up how much he lost today. And it might be more than mere dollars and cents.

It seems it will be quite some time before this story lurches to the final act.

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