SAN FRANCISCO - Yahoo became Microsoft Corp.’s takeover prey largely because Google established such a commanding lead in the Internet’s lucrative search advertising market.
But after eluding Microsoft’s grasp, Yahoo is now turning to Google to help squelch a rebellion among its shareholders who believe it should have accepted Microsoft’s $47.5 billion buyout offer while it was still available last month.
Yahoo announced its decision to let Google handle some of its advertising sales late Thursday, just a few hours after revealing it unsuccessfully tried to persuade Microsoft to renew its previous offer of $33 per share. The snub caused Yahoo to conclude that there is no hope for any kind of deal with Microsoft.
Although Yahoo believes Google could help boost its annual revenue by $800 million, the advertising partnership wasn’t enough to ease the disappointment of investors who had been holding out hope for a Microsoft deal.
Yahoo shares fell 85 cents, or 3.6 percent, to $22.67 in morning trading Friday after plunging 10.1 percent a day earlier. Google shares rose $12.96, or 2.3 percent, to $565.91 and Microsoft shares gained 53 cents to $28.77.
Part of the problem for Yahoo is that antitrust concerns might prevent an alliance with Google.
Google already holds about 75 percent of the $11 billion search advertising market in the United States with Yahoo a distant second at 9 percent, according to the research firm eMarketer Inc.
Microsoft and a variety of consumer-interest groups already have signaled they will turn up the political heat in an attempt to prevent Google from working with Yahoo.
The outcry has already drawn the attention of U.S. Sen. Herb Kohl, chairman of the Senate subcommittee on antitrust, competition policy and consumer rights.
“The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further,” said Kohl, a Wisconsin Democrat.
Yahoo and Google have voluntarily agreed to wait until late September to begin working together to give the government adequate time to review the arrangement. If it isn’t blocked, the partnership could last for the next decade.
The antitrust scrutiny appears to be the least of Yahoo’s worries for now.
The company also is trying to fend off a shareholder mutiny led by activist investor Carl Icahn, who has vowed to replace the company’s board because of the way the directors handled the Microsoft negotiations during the past 4 1/2 months.
But Icahn has been hoping to engineer a sale to Microsoft, so his campaign could be hurt by the perception that the software maker has lost all interest in buying Yahoo. Shareholders may be reluctant to support Icahn’s attempted coup unless he can demonstrate his slate of directors has a better turnaround plan than the current board.
Icahn did not return phone calls seeking comment Thursday.
The fate of Yahoo’s board is scheduled to be determined at the company’s Aug. 1 annual meeting. “If you are a Yahoo shareholder, you just have to be scratching your head right now,” said Standard and Poor’s equity analyst Scott Kessler.
If Wall Street’s backlash becomes severe enough, Kessler said he believes Yahoo might have to consider replacing co-founder Jerry Yang as its chief executive — something Icahn has already promised he will do if he wins control of the board.
After Yang took over the reins from Terry Semel a year ago, Yahoo’s stock price fell from $28.12 to $19.18 at the time Microsoft launched its unsolicited takeover attempt in January.
Yang “has been slow to move, slow to act and it has cost shareholders as a result,” Kessler said.
Many Yahoo shareholders blame Yang for letting his emotional attachment blur his judgment during the Microsoft negotiations. Yahoo’s board sent Yang and fellow co-founder David Filo to a pivotal May 3 meeting in Seattle to discuss Microsoft’s oral offer to buy the company for $33 per share, up from its initial bid of $31 per share. After Yang demanded $37 per share, Microsoft CEO Steve Ballmer withdrew the offer.
In recent weeks, Ballmer has been trying to buy Yahoo’s search engine instead.
Yahoo concluded that its search engine was too important to sell piecemeal.
Without explaining its logic, Microsoft said it believed a deal involving Yahoo’s search engine would have been more valuable to Yahoo than if it had bought the entire company at $33 per share. The Redmond, Wash.-based software maker said it remains open to buying Yahoo’s search operations.