Yahoo Defends Google Deal To Stockholders

Jerry Yang of Yahoo

"The Google agreement is non-exclusive and provides strategic and operational flexibility for Yahoo," wrote Yahoo Chairman Roy Bostock and CEO Jerry Yang in the letter released after the stock market's closing yesterday.

"It allows Yahoo to use Google's services in those areas where Google monetizes our inventory more effectively but also permits us to continue to use our own search technology in those areas where we believe we are most competitive," they wrote.

Yahoo has said the June 12 pact with Google will generate $250 million to $450 million in operating cash flow in the first year after beginning. The agreement was struck shortly after Microsoft ended talks with Yahoo concerning an outright acquisition or a more limited deal in which the software giant would only buy Yahoo's search business.

In their letter, Bostock and Yang said Microsoft's alternative search proposal would have involved an exclusive 10-year commitment, and "would have provided no meaningful improvement to our operating cash flow."

"Based on all the key factors," it continued, "strengthening our competitiveness, protecting our strategic position, generating attractive financial returns--the Google agreement is far better than Microsoft's search-only hybrid proposal. That's why we moved forward with it."

Microsoft had offered to pay $1 billion for the search business and a share of future search ad revenue. It also would have invested $8 billion in Yahoo for a 16% stake in the company.

The letter comes amid chatter that Microsoft and Yahoo have revived talks, although reports this week differed as to whether they involve a full acquisition or a smaller-scale deal. But it does not directly address the latest round of rumors surrounding the two companies.

However, the letter unambiguously urges stockholders to reject the alternate slate of directors put forward by activist investor Carl Icahn in favor of the current board members.

"Simply put, you can choose to vote for a slate of nominees with no articulated plan for the future of Yahoo--and who now have essentially no alternative agenda to offer you," according to the letter. "Or you can choose to vote for your existing board of directors which has the independence, experience, knowledge and commitment to navigate the Company through the rapidly-changing Internet environment."

Icahn initiated the proxy fight in order to try to force a Microsoft buyout of Yahoo. He has also advocated for replacing Yang as CEO. But with Microsoft bowing out on June 8, Icahn's gamble appears to have backfired.

Next story loading loading..