The company that buys Yahoo could end up paying $1 billion to Mozilla for nothing

In late 2014, Yahoo struck a deal with Mozilla to make it the default search engine on all Firefox browsers in the US.

That deal, which cost Yahoo $375 million in 2015, was meant to help Yahoo expand its search market share and better compete with Google.

But with the company now up for sale, the Yahoo-Mozilla deal could end up backfiring and cause potential Yahoo buyers to rethink their bidding price for the internet company.

It’s because of a hidden clause in the agreement that allows Mozilla to walk away from the deal and still get paid $375 million every year through 2019 if the company gets sold, according to Recode’s Kara Swisher. She writes:

“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.”

That means if Yahoo’s core internet business gets acquired by a company that Mozilla doesn’t like, Mozilla could strike a new search deal with another company, like Google, and yet still get paid over $1 billion in total over the next 3 years.

Swisher writes the main reason Mayer struck such an aggressive deal was because she thought Yahoo had conceded too much ground to Google in search, and thought she could win back some market share. She also didn’t anticipate a change of control.

Either way, this is just one of the many wrinkles that any potential Yahoo buyer will have to consider before placing a final bid for the company. Final bids are expected on Thursday. Currently, Verizon and a number of private equity firms are reported to be in the race to buy Yahoo’s internet business.

Yahoo’s representative was not immediately available for comment.

You can read the full Recode report here>>

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