In what could be a major dent in its efforts to find a buyer, it has been revealed that the deal Yahoo, Inc. signed with Mozilla to become the default search engine in Firefox included what can only be described as a crazy clause that would allow Mozilla to withdraw from the deal should Yahoo change hands while still being paid until 2019.
Re/Code made the discovery of the clause, which states that whoever acquires Yahoo might have to pay Mozilla annual payments of $375 million through 2019 if Mozilla does not want to work with the buyer and chooses to walk away.
According to the report, Yahoo Chief Executive Officer Marissa Mayer offered the “unprecedented term” to protect Mozilla in a change-of-control scenario, one that Mayer herself never thought would occur.
Kara Swisher explains:
According to the change-of-control term, 9.1 in the agreement, Mozilla has the right to leave the partnership if — under its sole discretion and in a certain time period — it did not deem the new partner acceptable. And if it did that, even if it struck another search deal, Yahoo is still obligated to pay out annual revenue guarantees of $375 million
Mozilla did not comment on the clause specifically, saying only in a statement that “each of our search partnerships is the result of a competitive process reflective of the value that Firefox brings to the ecosystem. The Yahoo relationship is no different.”
The revelation comes as potential buyers for Yahoo enter the third round of bidding, with that lineup said to include Verizon (the most likely buyer), Quicken Loans and a number of private equity players including TPG.
It’s not clear whether those bidders for Yahoo were aware of the clause before now; on the balance of probabilities the answer is probably yes, particularly given those companies still in the running to acquire Yahoo would have done proper due diligence.
That said, it’s also possible that Mozilla would not walk away from a new buyer as well, and if the potential acquirers were already aware of the crazy clause an educated guess is that some, if not all of them, have probably already started talks with Mozilla as to arrangements should they be successful in their bid.
For Marissa Mayer is not a great look for her already tarnished leadership of the continually floundering Yahoo, and given the potential cost to the company, not just under new ownership but in terms of the price buyers are willing to pay for it now, will long never be forgotten by Yahoo shareholders, and others with an interest in the industry as well.