There were at least two articles published online on April 12, 2012, including at Forbes, and Barron's, discussing the idea of Microsoft (MSFT) selling its Bing search engine to Facebook (FB) in exchange for Facebook stock. These articles apparently followed comments made in passing by Gary Kaminsky on CNBC, and comments in an anonymous Kindle e-book predicting such a deal.
As Yahoo (YHOO) currently has a search agreement with Microsoft, some potential problems with this idea may be found in the Termination Provisions in the binding letter agreement entered into between Yahoo and Microsoft on July 29, 2009, as outlined in an 8-K filed by Yahoo.
First, the 8-K disclosed that Yahoo has a right of first refusal to buy Microsoft's search services business as outlined in this quote:
"If Microsoft proposes or attempts to sell all or substantially all of either its algorithmic search services business or paid search services business to an unaffiliated third party, Yahoo! will have a right of first refusal and right of last offer to purchase such businesses."
Second, the 8-K disclosed that if Microsoft sells substantially all of its search business, Yahoo may terminate its Search Agreement with Microsoft:
"Yahoo! may terminate if Microsoft attempts to exit the business of algorithmic search or search monetization, either by ceasing to offer the services or by selling or attempting to sell all or substantially all of either its algorithmic search services business or paid search services business to an unaffiliated third party."
Yahoo later disclosed in an 8-K that on December 4, 2009 it entered into a material definitive Search and Advertising Sales Agreement along with a License Agreement, both of which can be found in Yahoo's 10-K filed on February 26, 2010, at Exhibits 10.18(B) and 10.18(C). Certain information (signified with asterisks) is omitted from these documents for confidentiality purposes, making it difficult to appreciate the potential consequences of a termination of the Microsoft-Yahoo arrangement on both companies. Readers interested in the potential outcomes of a sale of Bing by Microsoft are cautioned to read all of the filings related to the agreements between the companies in their entirety, and any potential amendments within filings, as I have only drawn attention to potentially relevant terms from the original letter agreement.
Media attention of a potential Bing sale to Facebook is especially interesting because Yahoo is currently suing Facebook, and Facebook has filed a counterclaim against Yahoo, for allegedly infringing upon each others' patents.
As Microsoft relies on services from Yahoo and derives revenue from Yahoo as part of its search agreement, the question arises whether a potential termination of the agreement by Yahoo would be detrimental to Facebook, should it even acquire Bing.
Also, given Yahoo is suing Facebook for patent infringement, one has to ask whether Microsoft would want to significantly increase its stake in Facebook, when Facebook has disclosed that the litigation could result in a material outcome, and the litigation has not been resolved.
That said, on April 10, 2012, Yahoo CEO Scott Thompson announced to employees in a memo the three new core groups on which Yahoo will focus: consumer, regions, and technology. Search falls under a unit of the consumer group called "connections". As Yahoo refocuses its attention in these groups, should a Facebook-Bing acquisition actually become more than a suggestion in the media, Yahoo may find it in its interest to attempt to negotiate an arrangement with a Facebook-run Bing, especially if it views Facebook's future prospects of executing profitable search to be better than that of Microsoft.
When investors hear suggestions of deals like the hypothetical Facebook-Bing combination, they may want to look at corporate filings to attempt to form their own opinions as to the probability of such a deal taking place. This may be difficult to assess for numerous reasons including: certain information may be omitted for confidentiality purposes; contracts can have differing legal interpretations; and parties to contracts can choose to renegotiate the contracts or litigate disputes and let the outcome be determined in court. In this case, a suggestion in the media that may have initially appeared beneficial to Microsoft and Facebook shareholders may potentially benefit Yahoo, including whether Yahoo exercises any rights it may have and derives a benefit from doing so; and whether Yahoo could somehow benefit through potentially continuing a Bing-arrangement with Facebook.
Disclosure: I am long YHOO.