Google abandons deal with Yahoo

Nov 6, 2008

Google has decided to abandon its advertising partnership with Yahoo to avoid having a "protracted legal battle" with regulators.

The deal involved Google providing some of the advertising around Yahoo's search results and would have been worth $800m (£494m) a year to Yahoo.

It was originally announced in June but has faced anti-trust objections.

Yahoo said in a statement it was disappointed that Google had decided not to fight for the deal in court.

Yahoo was relying on the deal with Google to help to placate shareholders angry about Yahoo rejecting Microsoft's takeover offer.

Google said it would not allow the prospect of a legal battle to distract it from its core mission.

"That would be like trying to drive down the road of innovation with the parking brake on," Google said in a blog.

Microsoft offer

Yahoo's management has been under pressure since rejecting the $33 a share offer from Microsoft, which valued the company at $47.5bn (£29.4bn).

Yahoo shares were trading at $14 each on Wednesday.

Now that the Google deal has fallen through, Yahoo may find itself having to try to do another deal with Microsoft, although Microsoft has publicly said it is no longer interested.

Carl Icahn, a Yahoo investor who now sits on its board, went as far as to try to sack the entire Yahoo board to try to resurrect the Microsoft deal.

Rising prices

Google and Yahoo are the top two search engines, so regulators at the US Department of Justice were concerned about a tie-up between them.

The two companies had delayed implementing their deal while it was considered by the regulators.

Microsoft and the Association of National Advertisers were among those objecting to the deal on the grounds that Yahoo and Google controlled 80% of the search market between them.

They suggested that the partnership would drive up online advertising rates, although Google rejected this on the grounds that its rates are set by an auction system.

The Justice Department said it had told Google that it planned to file a lawsuit to block the deal.

"Had the companies implemented their arrangement, Yahoo's competition likely would have been blunted immediately with respect to the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads," it said in a statement.

Source: BBC