Did Microsoft get the better of this deal? The Redmond company's shares are up slightly while Yahoo's shares are down significantly in initial trading following their announcement of a long-awaited search and advertising partnership this morning. Here's a sampling of what financial analysts are saying in notes to their clients this morning.

Sarah Friar, Goldman Sachs: "We view the deal as positive for Microsoft as terms are better for the company than had been speculated (no upfront fee; 88% TAC) and the combined market share provides scale to drive efficiency and legitimacy/relevancy for Microsoft’s online investments. Yahoo!’s $3.0 bn/year search sales translates to $360 mn/year for Microsoft in revenues. Microsoft will incur incremental expenses when the deal closes (expected early CY10), but limited (if any) impact on FY10E and while investments will continue into FY11, our model already assumes sizable expenses."

Mark Mahaney, Citi Investment Research: "Implications For YHOO - Positives: 1) YHOO believes deal would generate incremental $250MM in annual cash flow (17% accretive to our '09 est) - assumptions very hard to test, but magnitude is reasonably conservative; 2) 88% TAC is higher than industry average, but as expected given deal size. Challenges: 1) No upfront payment to YHOO is a negative vs. expectations, tho guaranteed RPS provides significant backstop; 2) Lack of display advertising deal is a negative vs. expectations; & 3) Acknowledgment of YHOO's Search technology limitations."

Todd Greenwald, Signal Hill Capital Group: "The deal announced today will take a very long time to come to fruition we think, and will face several challenges – it will face regulatory hurdles given Microsoft's antitrust history (though we'd expect it to ultimately get through given Google's dominance). Additionally, it seems hard to fathom operationally, as it will require Yahoo's salespeople to be selling Microsoft's technology. Advertisers will want one point of contact (which would be Yahoo), though that point of contact won't be entirely responsible for what they are selling – instead of bringing in an engineer from within the same building, the Yahoo salesperson may have to coordinate with a Microsoft employee up in Redmond. Not impossible, just tricky. And considering how smooth and automated the process of buying ads is on Google's platform, this could prove to be a competitive disadvantage."

Heath Terry and Andrew Thomas, FBR Capital Markets: "The lack of an up-front payment, no minimum revenue guarantee, and a revenue share that, while above average, is slightly below the +90% that larger deals command make for a lackluster deal for Yahoo!, in our opinion. The lack of any display component to the deal also seems like a missed opportunity for the company. As we see it, the only financial benefit to Yahoo! is the ability to shed the not insignificant technology costs associated with running a search engine. According to the company, this should result in an annual benefit to GAAP operating income of $500M. ... Restructuring these two businesses and untangling them from their existing partnerships and internal ties will be a massive organizational challenge for both companies."

Marianne Wolk and Malindi Davies, Susquehanna Financial Group: "Deal could be a positive for GOOG in the short term, even as it helps YHOO and MSFT become more competitive longer term. Longer term, the incremental scale should help free up resources for both MSFT and YHOO to invest in significant new opportunities in video, mobile, behavioral, etc. As to the latter, the companies indicate limited data sharing which will limit the deal’s benefits to behavioral targeting. As the deal does not include any shared solutions for display or email or instant messaging, further synergies in those areas does not appeal possible here. In the short term making this deal work – implementation and integration over the 24 month period – could be a distraction that provides GOOG a window of opportunity – through 2012 if the deal closes as planned in early 2010."