Yahoo filing reveals more details of Microsoft deal

The software giant will pay Yahoo $50 million per year over the first three years of the agreement

Microsoft will pay Yahoo US$50 million a year for three years and will hire at least 400 Yahoo employees as part of the companies' recent search agreement, according to a filing with the U.S. Securities and Exchange Commission.

Yahoo's form 8-K, which appeared online Tuesday, reveals a few additional details about the agreement. The deal, announced last week, will mean that Microsoft's Bing search engine will power Yahoo's search site and Yahoo will sell premium search ad services for both companies.

Five years into the 10-year agreement, Microsoft can opt out of the exclusive engagement for Yahoo's ad sales services, according to the filing. If it does, Yahoo will then keep 93 percent of the search revenue generated on sites owned and operated by Yahoo, instead of 88 percent. But Yahoo can also decide to remain the exclusive premium ad sales provider, in which case it will settle for an 83 percent share of the revenue. If Microsoft doesn't end the exclusive arrangement, Yahoo's share of the revenue will go up to 90 percent.

Some of the terms under which Yahoo can get out of the deal are directly tied to the performance of Google, the search market leader. Yahoo can terminate the agreement if the trailing year's average revenue per search in the U.S., from Yahoo and Microsoft's combined queries, dips below a specified percentage of Google's estimated revenue per search.

Yahoo can also get out of the deal if Microsoft decides to exit the search market. If Microsoft decides to try to sell the business, Yahoo gets the right of first refusal and right of last offer to buy the business.

Yahoo and Microsoft agreed to finalize the deal by Oct. 27 or use an arbitration panel to hammer out their differences. They estimate that implementing it will take two years. If they fail to implement the deal by July 29, 2010, the companies can terminate it by mutual consent. Yahoo, but not Microsoft, has the option of extending that date by six months if required to obtain antitrust approvals.

Microsoft agreed to do its best, including defending against lawsuits, to comply with antitrust laws.

Yahoo can decide to use Microsoft's mapping and mobile search services.

Microsoft agreed to hire at least 400 Yahoo workers. Yahoo can use the $50 million payments to help cover transition and implementation costs, it said.

The new details emerged after Microsoft CEO Steve Ballmer last week tried to justify the deal to a group of analysts, after noting that Yahoo's stock plummeted after the agreement was announced. Even though Yahoo didn't get a large upfront cash payout, which analysts apparently had hoped for, it will generate about $500 million in operating income and a savings of about $200 million in capital expenditures once it closes, he said.

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