Microsoft – Yahoo. Billions but Boring

Normally we’d be excited about a mega-deal structured in a one-off (almost) way, but we’re just not feeling it for the Yahoo-Microsoft search deal.

But like we just said the other day, everything old is new again.

This whole deal seems familiar, and it ended badly last time.

The reason for the reticence, and the lawyers (including lots of guesses on antitrust), after the jump.

Yahoo did this same deal ten years ago (HT: Eric Goldman for the link) – that time, they sold search to a relative newcomer who was focused exclusively on the technology, which was supposed to allow Yahoo to focus on the customer experience. Savvy users noticed that search was being performed by a third party, liked the results, and cut out the middleman. Obviously, that first search provider was Google.

So Yahoo obviously hasn’t learned the lesson – search is the key, not the bells and whistles around it.

It’s a nice feather in the cap for Sheppard Mullin, as they’re not particularly known as a valley firm or a big corporate firm, for that matter. But Brian Pass (Wesleyan BA ‘86, UCLA JD ‘91) led the commercial (licensing) aspects of this deal. Perkins Coie handled the negotiations for Microsoft.

Billion-dollar search licensing deals are few and far between, but even that’s not new. Pass just dusted off his drafts from the aborted deal Yahoo had ready to go with Google last fall before antitrust issues scuttled it.

The parties aren’t disclosing the revenue expectations, although Microsoft isn’t making any upfront payment. Yahoo keeps 88% of the revenue, which is way better than normal (although there isn’t really normal when the deal is this size).

The market doesn’t particularly care for the partnership, either. As TechCrunch noted, Yahoo lost $2.91 billion in market cap and Microsoft gained $2.94 billion – implying a $30 million synergy that all went to Microsoft.

So the antitrust piece is probably where the action will be, assuming Google tries to bust things up.

AmLaw Daily reports that Skadden, Latham, and Hunton & Williams are handling the antitrust work for Yahoo. Their strategy will be to claim that letting Yahoo and Microsoft team up is the only way anyone will be able to compete with Google – i.e., a duopoly is better than a monopoly. We suspect Skadden is kind of just hanging around supervising things, because Yahoo knows them well as outside counsel; Skadden led the pyrrhic takeover defense against Microsoft last year. Hunton is sort of the “lead” antitrust counsel for Yahoo because of a relationship with former assistant AG Hew Pate (UNC BA ‘84, Virginia JD ‘87). Pate brought in Latham’s Dan Wall (UC Davis BA ‘77, Santa Clara JD ‘80) last year because Wall led the team that crammed the Oracle-PeopleSoft merger through, over strenuous objection from the DOJ.

Last time around, when Google was trying to defend its pact with Yahoo, it used Cleary Gottlieb and Wilson Sonsini.

Microsoft, which was trying to bust up the deal, used Cadwalader’s Rick Rule (Vanderbilt BA ‘78, Chicago JD ‘81) who has an ace up his sleeve – three antitrust assistant AGs (Tom Barnett, Deb Garza, and David Meyer) are former partners of his.

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