Microsoft, Yahoo Search Deal Put On Hold

The deal that would see Microsoft Bing power Yahoo’s search results has been put on hold, as the two companies seek to finalise the details.

After much speculation, the search engine rivals signed the 10 year deal on 29 July. Yahoo would retain the look and feel of its revamped search engine, which has been tailored to mesh better with the well-trafficked homepage. Bing would serve the search results and monetize them with its ad platform. Microsoft agreed to pay Yahoo 88 percent of traffic acquisition costs during the first five years of the agreement.

The companies originally pledged to finish negotiating the deal by 27 October. However, in the filing, Yahoo said:

“Given the complex nature of the transaction, there remain some details to be finalised. The parties are working diligently on finalising the agreements, have made good progress to date, and have agreed to execute the agreements as expeditiously as possible.”

It seems that this doesn’t constitute a bump in the road, as the companies don’t expect the deal to be consummated until 2010, pending regulatory approvals.

The Department of Justice is scrutinising the deal, and groups such as the Association of National Advertisers have asked the DOJ to swiftly approve it because it’s good for the online advertising market.

Financial analysts did not hit the panic button on the news, as Broadpoint AmTech analyst Ben Schachter noted in a research note: “We do not view this as anything more than both companies looking for a bit more time to cross their t’s and dot their i’s.”

Speaking of financial analysts, Yahoo hosted a financial analyst day on Wednesday for the first time since 2007, and analysts who attended concluded the company is still on recovery road: Microsoft is coming to the rescue with the pending search deal.

Piper Jaffray analyst Gene Munster said he believes a a full year implementation of the Microsoft deal could mean a 600 basis point improvement to Yahoo’s operating cash flow margins once the deal is fully implemented in 2011.

More broadly, Bernstein Research analyst Jeffrey Lindsay said Yahoo CEO Carol Bartz seemed apologetic in acknowledging that Yahoo had lost the respect of advertisers and investors and was keen to win it back, with the help of a $100 million advertising campaign.

“We were encouraged by the intentions set out in Yahoo’s analyst day to improve display and paid search advertising, expand overseas and continue improving Yahoo’s platform and products,” Lindsay wrote in a research note.

Meanwhile, Yahoo is also rumoured to be working on indexing Twitter content with the help of real-time search provider OneRiot. That comes in the wake of deals Twitter inked to allow Microsoft Bing and Google to index tweets for their millions of users.

How this would look once Bing is powering Yahoo – Bing already offers its Bing Twitter website – is unclear.