Yahoo and Google Advertising Deal in Trouble

Those of you who feel that the merger of the web's two largest search engines is a flagrant violation of antitrust legislation will be happy to hear that an analyst studying Yahoo and Google's recent advertising deal believes it may very well fail.

Jeffrey Lindsay, analyst for Sanford Bernstein, recently called the attempted merger a "desperate gambit" and highly unlikely to pass the Justice Department. Lindsay expects a decision will be deferred until next year, with the expectation that a prolonged period of indecision will lead to the deal's eventual and perhaps inevitable fracturing.

So, what's the deal between Yahoo and Google all about?

You'll recall that back in June all the buzz was about Microsoft, not Google, attempting to seduce Yahoo into a merger. Yahoo executives became increasingly dissatisfied with Microsoft's terms, and in order to prevent the takeover instead struck a deal with Google, allowing its former nemesis to post ads on the Yahoo web site. (Source: reuters.com)

However, it seems the saving grace from Google won't last. Even though both Yahoo and Google have scaled back the terms of their agreement from a ten year partnership to just two, most experts like Lindsay are calling it a "band-aid" measure that won't impress the Justice Department.

"We expect the [Department of Justice] to defer a decision to next year and believe they are preparing for an antitrust showdown with Google," Lindsay stated. "We expect the Google-Yahoo deal to founder, leaving Yahoo unable to acquire AOL's portal and stuck in a stand-alone value trap." (Source: yahoo.com)

If the deal does fail, many expect Microsoft will re-approach Yahoo once again, although it's expected they'll do so with a much reduced pleasure package -- $20 a share instead of the $33 they offered last summer. (Source: reuters.com)