Microsoft to take 400 workers in Yahoo deal

Microsoft will hire at least 400 workers from Yahoo if government regulators approve the companies' proposed internet search partnership and Yahoo will receive $150 million (£80 million) to cover any unexpected costs during the switch to new technology.

Those details emerged yesterday in a regulatory filing that elaborated on an agreement announced last week.

Sunnyvale-based Yahoo said then that an unspecified number of its 13,000 employees would be offered jobs at Microsoft after the Redmond, Washington-based software maker assumes control of the search results and search advertising on Yahoo's website.

The transition is supposed to begin early next year, assuming the alliance is approved by antitrust regulators in the United States and Europe.

Microsoft will pay $50 million (£29.4 million) annually during the first three years of the 10-year contract to supplement the revenue that Yahoo will receive from the ads appearing alongside its search results. The $150 million in guaranteed payments weren't mentioned last week.

Yesterday 's filing said Yahoo can use the $150 million to pay for unforeseen transition costs.

Yahoo's stock has fallen by about 15 per cent since it unveiled the Microsoft deal, largely because announced terms didn't include a large upfront payment.

Yesterday's disclosure probably won't ease the disappointment much, given analysts had anticipated Microsoft paying $1 billion (£588 million) to $2 billion (£1.17 billion) for access to Yahoo's search engine. Yahoo's shares ended yesterday up 17c at $14.51. Microsoft eased 6c to $23.77.

Most of the revenue from the Microsoft deal will flow from ad commissions. Yahoo will receive 88 per cent of the search ad revenue during the first five years of the contract. After that, Yahoo's commission will range from 83 per cent to 93 per cent, depending on whether it still handles some of the ad sales in the partnership.

The main reason Yahoo decided to turn over its search engine to Microsoft was to save money. If Yahoo wants to save even more on technology, it has the option of adopting Microsoft's online mapping service to replace its own, according to the filing. Yahoo chief executive Carol Bartz has already made it known she isn't impressed with Yahoo's online maps.

As it is, transferring 400 workers to Microsoft would prune Yahoo's current payroll by about 3 per cent.

Yahoo will lay off some workers if the Microsoft deal goes through, Bartz said last week. Yesterday's filing didn't provide any layoff projections.

Although it also has been jettisoning workers because of the recession, Microsoft finished its latest fiscal year end in June with 93,000 employees - an increase of about 2000 people from the previous year.

Microsoft is counting on the Yahoo partnership to help it reverse years of losses in its online operations and siphon some traffic - and ad sales - from internet search leader Google.

Yahoo's search engine is the second largest, making it the quickest way for Microsoft to gain ground on Google. Even so, Microsoft and Yahoo combined have less than 30 per cent of the US search market compared with 65 per cent for Google, according to comScore.

To keep Yahoo happy, Microsoft will have to produce ad revenue per search that is within a certain percentage of Google's industry-leading rate. If Microsoft doesn't hit the target, Yahoo can abandon the partnership before the contract expires.

Yesterday's filing didn't specify how close Microsoft has to come to Google's revenue per search.

Microsoft estimates that Google gets 7c in ad revenue for every search, while Yahoo gets 4.3c and Microsoft gets 3.9c, according to a PowerPoint slide Microsoft mistakenly posted online.