Enough with the trendy Yahoo bashing (YHOO). This is actually a smart deal--way better than the wacky chop-shop plan Microsoft proposed (Microsoft offered to buy 16% of Yahoo for $35? So what? What good does that do anyone? And how were they ever going to separate the search business, anyway?).

In this deal, Yahoo gets:

• $250-$450 of additional free cash flow in Year 1. That's a lot of cash flow! Especially because it doesn't cost Yahoo anything.
• More cash flow in years 2-4, as the deal ramps and Yahoo's search-query share remains meaningful (And some cash flow in years 4-10 with almost no cost, as Yahoo's search-query share dwindles).
• The ability to maintain or phase out Panama as it sees fit. Assuming the Google deal delivers, we expect Yahoo to phase out Panama over the next couple of years, especially as its search share shrinks. It won't tell the regulators this, of course, because then it would be easier for Microsoft to argue (correctly) that this deal will crush Google's competition. But it will always have that option.
  
• The ability to strike a death-blow to the one other player in the search market with any kind of meaningful share--Microsoft. Microsoft is toast anyway in search, but if it had bought Yahoo it would have been able to hold on a bit longer. Now it has not only not bought Yahoo--it has sent Yahoo into the arms of the enemy.
  
• A perfectly defensible deal structure that the regulators shouldn't have any real cause to block. (This doesn't mean Microsoft won't scare the regulators into delaying the process for months, of course).
• The freedom to focus on display advertising and AMP, Yahoo's new display serving platform. Yahoo has already lost the search game to Google, and denying that isn't going to help anyone. So it might as well let Google take care of search and focus on what it's still good at--display.
  

No, this deal won't save Yahoo. Yahoo's search query share is likely to continue to decline, and, as it does, no amount of "monetization" improvement-per-query will matter. But in the years that its search business has left, Yahoo can now focus almost all of its efforts on revitalizing its properties and display business, which is where its future lies.

Yahoo shareholders will likely have to wait a long while to get back to the $34-$35 Jerry could have had for the asking in mid-February. But with this deal and strong execution over the next few years, there's a good chance they won't be waiting in vain forever.

See Also: At Long Last...The Yahoo-Google Search Deal

Disclosure: Henry Blodget has a long-term position in Yahoo.