Yahoo cut a better Microsoft deal than was feared at first

YAHOO&rsquo;S share price lifted yesterday, after a regulatory filing in the US showed its 10-year tie-up with Microsoft to be more beneficial to the business than originally thought.<br /><br />Under previously disclosed terms of the deal, announced last week, Microsoft&rsquo;s Bing search engine will power search queries on Yahoo&rsquo;s sites, while Yahoo will handle the sale of &ldquo;premium&rdquo; search ads to large advertisers for both sites.<br /><br />The partnership is forecast to generate income of $500m (&pound;305m) a year for Yahoo, which will keep 88 per cent of revenue generated on its own sites for the first five years and save around $200m.<br /><br />But Yahoo&rsquo;s shares had initially fallen on the news, as Wall Street expressed concern that the revenue share was lower than expected and a one-off payment of &pound;1bn-&pound;2bn had failed to materialise, making the deal look better for Microsoft than Yahoo.<br /><br />However, Yahoo&rsquo;s revenue share could increase to 93 per cent in the second half of the relationship if Microsoft opts to take back control of premium ad sales on its own sites. If Yahoo exercises the right to block the move, it&rsquo;s share will be reduced to 83 per cent.<br /><br />And if both firms agree to continue as they have for the first five years, Yahoo&rsquo;s share will rise to 90 per cent.<br /><br />The filing also shows that Yahoo can walk away from the deal if its revenue per search sinks below a set percentage of Google&rsquo;s. In addition, Microsoft will pay Yahoo $50m a year for three years to cover transition costs &ldquo;not otherwise covered&rdquo;.