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(Reuters) – Microsoft Corp and Yahoo Inc inked a 10-year Web search
deal to better compete against market leader Google Inc but stopped
short of combining their display advertising businesses.

Shares of Yahoo, which had risen in recent weeks in anticipation of
this deal, fell more than 7 percent in premarket trading, while shares
of Microsoft edged higher.

The deal will boost Yahoo’s annual operating income by about $500
million and yield capital expenditure savings of $200 million, the
companies said in a joint statement on Wednesday.

Microsoft’s Bing search engine will be the exclusive algorithmic
search and paid search technology for Yahoo’s sites, while Yahoo will
be responsible for selling premium search ads for both companies.

Each company will maintain its own separate display advertising business and sales force, they said.

The deal combines the number two and number three players in the
U.S. market for Internet search and positions them to better compete
with Google, which has an estimated 65 percent share of the U.S. search
market.

(Reporting by Tiffany Wu; Editing by Derek Caney)