Microsoft, Yahoo! ink search engine deal; Targa Resources announces purchase from parent

By Stephanie N. Rotondo

Portland, Ore., July 29 - Microsoft Corp.'s newly announced partnership with Yahoo! Inc. garnered most of the attention Wednesday in the merger-and-acquisition space.

The deal was announced late Tuesday. Once Wednesday's session began, it seemed that investors were not pleased with the terms, and one lawmaker said the deal requires "careful scrutiny."

Elsewhere, Targa Resources Partners LP said it will take on its parent company's natural gas liquids unit in a transaction valued at $530 million. Targa said the acquisition will be "immediately accretive" to earnings.

Overall, the equities tumbled Wednesday, as the Down Jones Industrial Average fell 26 points, or 0.29%, to 9,070.72. The Standard & Poor's 500 index dropped 4.47 points, or 0.46%, to 975.15, and the Nasdaq Composite slipped 7.75 points, or 0.39%, to 1,967.76

Microsoft, Yahoo! out to stop Google

After months of back and forth, Microsoft and Yahoo! finally inked a partnership deal to improve the internet search engine Bing - and take a swipe at stealing market share from competitor Google Inc.

Under the terms of the deal, Microsoft will be the muscle behind the search function, while Yahoo! will govern the sales force for the search page's advertising.

The 10-year agreement allows Microsoft to secure a 10-year license to Yahoo!'s search technologies and for Bing to be the new search engine for both companies.

Yahoo! will benefit from a revenue-sharing agreement, and Microsoft will also pay traffic acquisition costs at a rate of 88% of revenue generated through Yahoo!.

"At full implementation, Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million," Yahoo! said in a news release. "Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million."

Yahoo! believes that the partnership will bring "boatloads" of value to its customers and advertisers, chief executive officer Carol Bartz said in a statement.

"Users will continue to experience search as a vital part of their Yahoo! experiences and will enjoy increased innovation thanks to the scale and resources this deal provides," Bartz said. "Advertisers will also benefit from scale and enjoy greater ease of use and efficiencies working with a single platform and sales team for premium advertisers."

But already the deal is generating somewhat negative responses.

"The deal between Yahoo and Microsoft - industry giants and direct competitors in internet advertising and search markets - warrants our careful scrutiny," Sen. Herb Kohl (D-Wis.) said in a prepared statement. Kohl is the chairman of the Senate Judiciary Committee's antitrust, competition policy and consumer rights subcommittee.

He noted that the committee plans to "closely review" the implications of the partnership.

In addition to Sen. Kohl's comments, Yahoo! investors did not seem too happy with the deal, pushing Yahoo!'s equity lower during the Wednesday trading session.

The companies hope to close the deal in early 2010.

Yahoo!'s stock declined $2.08, or 12.08%, to $15.14, while Microsoft's gained 30 cents, or 1.28%, to close at $23.77.

Google's stock fell $3.61, or 0.82%, to $436.24.

Targa to buy assets from parent

Targa Resources Partners said late Tuesday it will acquire the natural gas liquids business of its parent company, Targa Resources Inc., in a $530 million transaction.

A quarter of the deal will be funded by approximately 8.53 million newly issued shares of common stock and 174,033 general partner units, valued at $15.227 per unit. The remaining $397.5 million will be paid with borrowings under the company's credit facility.

"The acquisition of the downstream business is immediately accretive to the partnership's distributable cash flow," Rene Joyce, Targa's chief executive officer and general partner, said in a news release. "Moreover, the acquisition provides visibility with respect to the current distribution for the foreseeable future, especially given the cash flow generating capability of the downstream business and the distribution support that the partnership will enjoy for the next two years.

"More importantly, the transaction adds high quality assets that generate a significant amount of fee based income and will strengthen and diversify the EBITDA profile of the partnership," Joyce added. "The powerful combination of this strategic asset platform, substantial distribution support and the maximum equity consideration permitted under Targa's financing agreements underscores Targa's commitment to the partnership's long term success."

Targa Resources' shares fell 16 cents, or 0.81%, to $17.85.

Mentioned in this article:

Google Inc. Nasdaq: GOOG

Microsoft Corp. Nasdaq: MSFT

Targa Resources Partners LP Nasdaq: NGLS

Yahoo! Inc. Nasdaq: YHOO

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