Colin Gillis Comments: Microsoft, Yahoo to Integrate Search Businesses After Approvals-Bloomberg

Microsoft Corp. and Yahoo! Inc. said they will start integrating their Internet-search businesses after winning regulatory approvals in Europe and the U.S. for their efforts to challenge Google Inc.

The companies will start implementing the combination in the coming days, according to a joint statement today. The agreement won’t harm competition in the 27-nation European Union, the European Commission said earlier today. The U.S. Department of Justice also approved the deal.

Microsoft and Yahoo struck the 10-year agreement in July to take on Google, which controls about two-thirds of the U.S. search market. Yahoo, which has lost almost a fifth of its market share in the past year, plans to use Microsoft’s Bing search engine on its sites and sell ads next to the results.

“Now they can push forward,” said Colin Gillis, an analyst at BGC Financial LP in New York, who recommends buying Yahoo shares and doesn’t own any. “It wasn’t a given that you were going to get EC and U.S. approval. The investor concern was that if this process got politicized, both companies are stuck in limbo.”

The companies said they plan to complete the integration by the end of the year, at least in the U.S. They plan to move U.S. advertisers and publishers across to the new arrangement before the 2010 holiday season, though they may wait until 2011. All global customers and partners will be transitioned by early 2012, the companies said.

 ‘Stronger Competitor’

Microsoft added 25 cents to $28.84 at 2:49 p.m. New York time on the Nasdaq Stock Market. The shares had lost 6.2 percent this year before today. Yahoo, based in Sunnyvale, California, gained 6 cents to $15.50. Google rose $5.29 to $543.50.

While Mountain View, California-based Google is maintaining its dominance in the search industry, Bing has increased its market share for eight straight months. Redmond, Washington- based Microsoft plans to claim more of the market when it completes the agreement with Yahoo.

Advertisers and online publishers expect the deal to “increase competition in Internet search and search advertising by allowing Microsoft to become a stronger competitor to Google,” the European commission said in a statement today.

Yahoo’s share of the U.S. search market fell to 17 percent in January from 21 percent a year earlier and from 19.6 percent in June, a month before the deal was announced, according to Reston, Virginia-based research firm ComScore Inc. Microsoft’s share rose to 11.3 percent in January from 8.5 percent a year ago. Google’s share increased to 65.4 percent from 63 percent.

Cost Savings

When Yahoo Chief Executive Officer Carol Bartz struck the deal with Microsoft, she said it would allow the Internet company to cut capital spending by $200 million.

“From a Yahoo perspective, the question now is how quickly do they implement it around the cost savings,” said Ben Schachter, an analyst at Broadpoint AmTech Inc. in New York. He has a “buy” rating on Yahoo and doesn’t own its shares. “And as they’re doing that, can they actually stabilize their search share losses -- because, if not, this is a real problem.”

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