Microsoft Deal Fails to Appease Yahoo Shareholders

The Yahoo-Microsoft deal is far from being closed and its effects are long reaching. Still, while it represented a milestone and the culmination of several years of talks between the two giants, when the deal was finally struck its terms were less than impressive for most shareholders, with Yahoo stock price dropping following the announcement and staying at the lower levels since.

A month ago almost to the day, Yahoo announced it had reached an agreement with Microsoft to take over its search business. The move would mean the former's de facto exit from the search market and would make Bing Google's largest competitor with an almost 30 percent share of the market. Yahoo would in turn handle the big search advertising accounts for both companies and would also get a great boost in search ad revenue for the first years as well as $150 million in the first three years to cover unexpected costs.

But shareholders weren't phased by the deal as most were expecting a big upfront cash payout from Microsoft in the light of previous offers from the Redmond giant as well as some commentaries from Yahoo's flamboyant CEO Carol Bartz. Seeing the what they believed were less-than-optimal terms of the deal, stock price for Yahoo shares dropped 12 percent on the day of the announcement and has since stayed at that level.

"Investors continue to be concerned there were no revenue guarantees, and that Yahoo didn't extract as high a value as they could have for this business," Ben Schachter, an analyst covering Yahoo for Broadpoint AmTech, said, according to Psyorg.

The main issues are that, while in the short term the deal is a great cost-cutting move, it isn't a very solid proposal for future growth and it undermines one of Yahoo's key assets, Search. The company countered these fears saying it planned to focus on a number of core properties and the deal would free it to move more into content and a tighter integration of some of its most important products.