July 29, 2009 2:03 PM

Sheppard Mullin, Skadden, Perkins Coie Advise on Microsoft-Yahoo Ad Deal

Posted by Brian Baxter

Three firms have landed key advisory roles on one of the most significant non-M&A commercial transactions in recent months: the ten-year Internet search deal announced on Wednesday between Microsoft and Yahoo that seeks to scuttle Google's market dominance.

Under the terms of the deal, Yahoo will use and promote Microsoft's new Bing search engine on its site. Yahoo will also keep 88 percent of revenue from all search ad sales for the first five years and have the right to sell ads on select Microsoft sites.

While the lack of an up-front payment by Microsoft caused shares of Yahoo to sink early Wednesday, the deal is a clear shot across the bow of Google, the dominant force in online search and advertising.

Yahoo turned to a team of lawyers from Skadden, Arps, Slate, Meagher & Flom and Sheppard Mullin Richter & Hampton for the agreement with Microsoft.

"This is a new business model for Yahoo as it moves its algorithmic and page search over to Microsoft," says Sheppard Mullin's Brian Pass, the lead transactional lawyer on the deal for Yahoo. "It really completes an interesting transition for Yahoo, which will now focus on its consumer experience and display advertising."

Pass, IP partner Gary Clark, and associate Lauren Grubb negotiated commercial terms of the ad sharing agreement for Yahoo. Pass declined to comment when asked how much money Yahoo expected to receive from Microsoft as part of the transaction.

Yahoo has turned to Pass for several noteworthy commercial matters in recent years, most recently an advertising partnership reached with Google last summer after Yahoo successfully fought off an unsolicited $45 billion takeover bid by Microsoft in May 2008.

Skadden M&A partner Kenton King, partner-in-charge of the firm's Palo Alto and San Francisco offices, was one of the architects behind a Yahoo defense that eventually caused Microsoft to abandon its three-month siege of the Sunnyvale, Calif.-based company.

Yahoo is a longtime Skadden client, and the online portal turned to Skadden antitrust partners Michael Weiner and Alec Chang and a team of lawyers from Latham & Watkins and Hunton & Williams to represent it in talks with the Justice Department in hopes of avoiding an antitrust challenge to its deal with Google.

The accord was officially scrapped in November when Google backed out after the Justice Department indicated that is was unlikely to approve an ad agreement between companies with the two largest Internet search engines in the U.S.

After the Justice Department rendered its decision, Sheppard Mullin's Pass says negotiations between Microsoft and Yahoo resumed once more. He hopes the current deal will receive the necessary antitrust approvals. (While the deal will likely be closely scrutinized by regulators, Reuters reports that it should still squeak through.)

Skadden's Ken King, fellow M&A partner Leif King, antitrust partners Weiner and Chang, and communications partner Ivan Schlager advised Yahoo on the Internet search portions of the agreement with Microsoft.

Perkins Coie represented Microsoft on the ad sales agreement. The firm, which is one of Microsoft's preferred legal providers, did not immediately respond to a request for comment.

Together, Microsoft and Yahoo are expected to control nearly 30 percent of Internet search traffic, which still trails far behind the two-thirds market share held by Google.

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