Update 12:02 p.m.: I added a detail about change-in-control provision.
On Thursday, Yahoo and Google trumpeted the financial benefits of their search-ad deal. But on Friday, a regulatory filing showed the companies also have factored more pessimistic possibilities into their plans.
Specifically, Yahoo's filing with the Securities and Exchange Commission describes the terms--including antitrust litigation, low financial performance, or management changes at Yahoo--that could let the parties back out of the deal.
Microsoft has explicitly raised antitrust concerns about a Yahoo-Google search-ad deal in the past, arguing it will increase Google's dominance in the area, and it's likely Microsoft will raise further objections now that the Internet companies have signed a 10-year deal. But if things get really bad on the antitrust front, Yahoo and Google are permitted to back out.
Antitrust escape hatch
Either party may cancel the deal "to avoid or end a lawsuit or similar action filed on competition law grounds," the filing said.
Don't expect the companies to flee at the first sign of antitrust trouble, though: Google and Yahoo have both argued their deal doesn't violate any antitrust law.
For example, Google points to the relevant market as all online advertising, not just the placement of textual ads next to search results. And Yahoo said antitrust approval isn't even required, though it and Google won't launch actual ad sales until after a Justice Department antitrust review that could last up to three and a half months.
Google also has an option to scrap the deal if it doesn't meet financial terms. Specifically, starting 10 months after it begins selling ads on Yahoo's site, if the deal doesn't produce gross revenue for Google of at least $83.33 million for the four consecutive calendar months.
Don't take that to mean that Google expects at least $250 million a year for its own coffers out of the deal, though. The company will pay Yahoo an unspecified portion of the ad revenue, a practice Google already offers many online publishers through its AdSense program.
The filing said Google will pay Yahoo a variable percentage of its gross revenue to Yahoo, with the percentage changing according to unspecified revenue levels.
Yahoo said Thursday it expects to increase its revenue by $800 million in the first 12 months of the deal, with incremental cash flow from operations of $250 million to $450 million. Yahoo had revenue of $1.53 billion in its most recent quarter, excluding commissions paid to advertising partners.
Change in control
Either party may scuttle the deal with a "change in control," such as a merger or acquisition, and the filing details some of those possibilities.
The specific details are extremely complicated--one sentence runs 354 words long--but suffice it to say that the companies look to be particularly focused on a change in control involving Microsoft, News Corp., or Time Warner.
For example, Yahoo or Google could cancel the deal if--just to pick a wild and crazy possibility--IBM acquired 50 percent of Yahoo's voting share power. But if it's Microsoft, News Corp., or Time Warner acquiring the shares, the companies can terminate the deal when just 35 percent have been acquired.Canceling the deal from a change in control would cost Yahoo, though. Unless it's because of a Microsoft acquisition or stake in the company, Yahoo would have to pay Google $250 million, minus half the revenue Google got from the deal.