Yahoo-Google: Defining A Change In Control; Google’s Revenue Guarantee
By Joseph Weisenthal - Fri 13 Jun 2008 06:24 AM PST
Yahoo’s (NSDQ: YHOO) ad outsourcing deal with Google (NSDQ: GOOG) does not necessarily preclude a sale to Microsoft (NSDQ: MSFT) down the road. In a filing made this morning, the company explains what exactly constitutes a change in control, which would allow Yahoo to get out of the deal. Beyond that, the company enumerates other triggers that can prompt a termination include legal action related to anti-competitiveness, a court order, a material breach by either party, or if Google does not realize a minimum threshold revenue: “Google may terminate the Services Agreement if, after ten months after the Services are first launched, and each month thereafter, the gross revenues recognized by Google under the Services Agreement are less than $83,333,333 for the four prior calendar months.” ($250 million per year.)
-- Change in Control Definition: For the purposes of this agreement, a change in control is defined as any other party gaining more than 50 percent control of one of the companies. But: In the case of Microsoft, that is lowered to just 15 percent. And if Microsoft were to acquire a stake directly from Yahoo, then the bar is dropped to: ”5 percent or more of the total equity value of the party or 1 percent or more of the party’s annual revenues on a consolidated basis.” Meanwhile, if News Corp (NYSE: NWS). or Time Warner (NYSE: TWX) were to buy a chunk of Yahoo, they would need only to control 35 percent of the company to qualify as a change in control.
-- Yahoo’s penalty: The filing delves deeper into the penalty Yahoo would have to pay to get out of the deal, and what would trigger it: “If the Services Agreement is terminated by either party within 24 months of the Effective Date as a result of a Change in Control of Yahoo! (other than a Change in Control triggered only by Microsoft either (x) acquiring beneficial ownership of voting securities representing more than 15% of the voting power of outstanding Yahoo! voting securities or (y) acquiring directly from Yahoo! equity or voting securities representing 5% or more of Yahoo!’s total equity value or 1% or more of Yahoo!’s consolidated annual revenues, unless Microsoft becomes the beneficial owner of more than 35% of the voting power of such securities within such 24 month period), Yahoo! is required to pay to Google the sum of $250,000,000, which payment will be reduced by one-half of an amount equal to (a) all gross revenues received by Google pursuant to the Services Agreement through the date of termination less (b) the amount equal to Yahoo!’s share of such gross revenues during the same period.”
