Yahoo cuts deal with Google

Yahoo Inc has struck a deal with rival Google to run the online search leader's ads alongside its own search results in hopes of boosting its sagging fortunes, hours after announcing that its talks with Microsoft regarding a potential transaction had fallen through.

In a statement, Yahoo said last night it expects the pact — under which it will show Google ads next to its search results on some of its websites in the US and Canada — will increase its revenues by approximately $800 million in the first 12 months, and generate an additional estimated $250 million to $450 million in incremental operating cash flow.

"We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry. Our strategies are specifically designed to capitalise on this convergence — and this agreement helps us move them forward in a significant way," Yahoo CEO and co-founder Jerry Yang said.

Yahoo President Sue Decker said the 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 objectives with users."

The companies have agreed to delay implementation of the agreement for up to three-and-a-half months while the US Department of Justice reviews the arrangement.

The partnership with Google was widely anticipated after Yahoo failed to reach an agreement with Microsoft.
Earlier in the day, Yahoo announced that its talks with Microsoft regarding a potential transaction — whether for an acquisition of all of Yahoo or a partial acquisition — had ended.