poster_boy - 7:57 pm on Feb 6, 2008 (gmt 0)

SAN FRANCISCO (MarketWatch) -- Faced with Microsoft Corp.'s $44.6 billion "bear hug" offer, Yahoo Inc. may be considering a move to hand control of its troubled search-advertising business to Google Inc. in an effort to remain independent.

Such an "outsourcing" deal could cut costs at Yahoo while bringing in cash to appease investors already anticipating a payout from Microsoft's $31 a share bid.

Under the terms of such a deal, the paid advertisements, or "sponsor results" on Yahoo search pages, would be selected and delivered to Internet users by Google, which would then provide a share of any resulting revenue to Yahoo. An up-front payment from Google could be used by Yahoo to placate its shareholders if the company chooses to forgo the lucrative offer from Microsoft, which represented a 62% premium to Yahoo's market value when the bid was announced last week.
Some analysts believe Yahoo taking an up-front payment from Google is simply a short-term fix.

But such as move also has several drawbacks. Some analysts believe Yahoo taking an up-front payment from Google is simply a short-term fix that would hurt future cash flows without improving the company's overall business.

MarketWatch [marketwatch.com]