Yahoo's Bartz Got Her Boatload of Cash, Says Ballmer

Posted by: Peter Burrows on July 30, 2009

Normally, CEOs use their introductory remarks at their finanical analysts meetings to talk up their own rosy prospects. I’m watching Microsoft Steve Ballmer do just that—except for a lengthy aside when he came to the defense of Yahoo CEO Carol Bartz. She’s been roundly criticized for the partnership announced yesterday, in which Yahoo agreed to license all of its search technologies to Microsoft without getting any upfront “boatload of cash” that analysts expected her to walk away with.

Having sat through a day of interviews yesterday with the media (including myself and Rob Hof) and investors to explain the deal, Ballmer insists that “nobody gets it…We can create economic value, that’s going to benefit Yahoo’s shareholders and Microsoft shareholders.”

In fact, he says Bartz brought home a rare freebie, where Yahoo gets to keep 88% of the revenue from its search advertising business for the next few years, with no associated R&D or capital expense. That’s why Yahoo believes it can increase its annual operating income by $500 million over time—a 70% increase for a company that typically makes around $700 million. “It’s kind of unbelievable, really….I’d like to tell you we kept most of the economic value [created by the deal]. But that’s not not what happened. Well over 50% of the economic value goes to Yahoo.”

Of course, he also notes that Yahoo’s benefits from the partnership are front-loaded for the next few years. And while Yahoo may get a financial benefit, Microsoft gets the longer-term, strategic advantage. It’s now the clear No. 2 in the most lucrative, strategic market to come around in decades. That leaves Microsoft with the scale not only to succeed in search, but on the Net generally. Without search-related profits, how is Yahoo going to keep up in the arms race among the big boys to build billion dollar data centers? This is a big deal, that’s gotten lost in the analysis of the last few days.

So try as he might to come to his new partners’ defense, I still think Wall Street got it right. And judging from the continued drop in Yahoo shares today, Ballmer’s arguments aren’t resonating.

Reader Comments

Ray

July 30, 2009 6:26 PM

Yeah - Chrysler, GM, and AIG got loads for cash too - so?

edmund

July 30, 2009 8:17 PM

After turning down a $48 billion acqusition, $500M is a boat load of cash for giving up a long term race in search technolgoy?

I bet Steve is laughing a boat load.

edmund

July 30, 2009 8:17 PM

After turning down a $48 billion acqusition, $500M is a boat load of cash for giving up a long term race in search technolgoy?

I bet Steve is laughing a boat load.

zato

July 31, 2009 7:36 AM

Here's my guess about what happened: Carol Bartz was brought in to turn Yahoo over to Microsoft. Microsoft is the Corleone family of tech. With this deal, Microsoft has settled all Yahoo family business. Microsoft controls tech and financial media. If you deny or oppose Microsoft, you will suffer the consequences in blogs and websites all over the internet, and on Wall street. Carol Bartz has done her job now.

mathlete

August 1, 2009 11:45 AM

$500 mil/year over the life of a 10 yr deal = $50 billion

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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