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Yahoo Needs New Suitor As Google Backs Off

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By JOELLE TESSLER and MICHAEL LIEDTKE The Associated Press

The Tampa Tribune

Published: November 6, 2008

WASHINGTON - Google Inc. has scrapped its Internet advertising partnership with struggling rival Yahoo Inc., abandoning attempts to overcome the objections of antitrust regulators and customers who believed the alliance would give Google too much power over online commerce.

The retreat announced Wednesday represented another setback for Yahoo, which had been counting on the Google deal to boost its finances and placate shareholders still incensed by management's decision to reject a $47.5 billion takeover bid from Microsoft Corp. six months ago.

To Yahoo's dismay, Google backed off to avoid a challenge from the U.S. Justice Department, which said it would sue to block the Yahoo deal to preserve competition in Internet advertising.

"The arrangement likely would have denied consumers the benefits of competition - lower prices, better service and greater innovation," said Thomas Barnett, an assistant attorney general who oversees the Justice Department's antitrust division.

Without Google's help, Yahoo now might feel more pressure to renew talks with Microsoft and ultimately sell itself for much less than the $33 per share that Microsoft offered in May. Surrendering the chance to sell ads on Yahoo's popular Web site won't be a significant financial blow for Google, which already runs the Internet's largest and most prosperous advertising network. The Mountain View, Calif.-based company's main incentive for entering the deal was to keep Yahoo out of Microsoft's hands. "We're of course disappointed that this deal won't be moving ahead," David Drummond, Google's chief legal officer, wrote on a company blog. "But we're not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on."

Yahoo said it wanted to fight the Justice Department in court, though it played down the impact Google's retreat would have on its turnaround efforts.

Even though it is now walking away from the Yahoo partnership plan empty-handed, Google figures to remain in regulators' sights as it tries to expand.

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