Yahoo!, Google reach agreement

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: Microsoft’s four-month-long courtship of Yahoo! has finally thrown Yahoo! into the arms of their biggest common rival, Google. Google and Yahoo! said that they had reached an agreement under which Google would deliver ads next to some of Yahoo’s search results and on some of its websites in the US and Canada. The nonexclusive deal is aimed at giving a lift to Yahoo’s finances, and the company said it would generate an additional $250 million to $450 million in operating cash flow in the first year.

The agreement will also strengthen Google’s dominance over the lucrative search advertising market. It was signed after Yahoo! rejected a proposal by Microsoft to acquire both Yahoo’s search business and a minority stake in the company. The rejection appears to end months of on-again, off-again negotiations between the two companies.

“Clearly, it is time to move on,” Jerry Yang, Yahoo’s chief executive, said in a conference call. “This agreement with Google helps us to do so,” Yang added, saying that the deal would allow Yahoo! to continue to compete in its two main lines of business, search and display advertising.

Wall Street was less confident, sending Yahoo’s shares down more than 10%, to close at $23.52, after the announcement that there would be no deal with Microsoft—not for the $47.5 billion it initially bid for all of Yahoo!, or a smaller deal for any part of it. The deal is certain to draw scrutiny from antitrust regulators, and the companies have agreed to delay it for three and a half months to give the Justice Department time to review it. Senator Herb Kohl, Democrat of Wisconsin, the chairman of the Senate antitrust subcommittee, said his panel would closely examine the venture.

The deal is also likely to become fodder in the heated battle betwe-en Carl C Icahn, the activist inves-tor, and Yahoo! for control of the company. Icahn has said that if Microsoft could not be persuaded to renew its bid for all of Yahoo!, he would push for Yahoo to complete a search advertising deal with Google. In a statement, Microsoft said that its offer to buy Yahoo’s search business was still valid.