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Not that there was any doubt, but just in case anyone was thinking a relationship could be rekindled, Yahoo announced today that any discussions with Microsoft over merger, or other relationship, are done. Now both sides have said it… more than once.

Yahoo said in a press release that following numerous meetings, talks were “concluded.”  Microsoft was not interested in pursuing an acquisition for all of Yahoo and Yahoo’s board has determined that the sale of just their search business would not be in their best interests.

Microsoft affirmed the statement in a press release of their owning stating, “As stated on May 3rd and reiterated on May 18th Microsoft was not interested in rebidding for all of Yahoo!.  Our alternative transaction remains available for discussion.”

Moving forward, Yahoo will instead supplement income and try to boost their search business by working with Google.   In a separate announcement, it was confirmed that the two have reached a non-exclusive search deal that could be worth an extra $250 to $400m in cash flow.

The deal will allow Yahoo to run ads supplied by Google alongside Yahoo’s search results and on some web properties in the U.S. and Canada.  The deal is non exclusive and will leave Yahoo the flexibility to alternate between the paid Google search results and Yahoo’s own search advertising results.

Yahoo’s president Sue Decker characterized the deal saying “this agreement provides a source of funds to both deliver financial value to stockholders from search monetization and to invest in our broader strategy to transform display advertising and advance our starting point objectives with users.”

Other elements:
•The term of the contract with Google will be 10 years. That will run through an initial four year period and then be subject to two three year renewal periods at Yahoo’s election.

•Termination of the deal can occur, by either Google or Yahoo’s choosing, in the event of change in control. So if Yahoo is to structure an alternate deal (or Microsoft somehow comes back to the table), Yahoo can walk away.  The exit won’t be free, however.    The cost could be as high as $250m in termination fees during the first 24 months.  (Lesser fees could be possible with reduction terms)

•Geographically, the deal will be limited to the US and Canada.   Based on current monetization rates, Yahoo expects that to mean about $800m in annual revenue opportunity.   In incremental cash flow that could mean $250m to $400m.

•Regulatory issues are not expected to be an issue but the companies will voluntarily provide information to the Department of Justice and will wait three and a half months before starting the deal.

•No comments have been made regarding guaranteed terms or costs but Decker has confirmed that the split of Traffic Acquisition Costs (TAC) is competitive.

More on the news, including how the deal may influence Carl Icahn’s fight to seat a new Yahoo board, will follow as the story unfolds.

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