Yahoo! and Google will postpone implementing their Internet-advertising partnership until US regulators complete a review on whether the deal will hurt competition.
The companies agreed to a “brief” delay while discussions with the Justice Department continue, Yahoo and Google said yesterday in e-mailed statements. Google Chief Executive Officer Eric Schmidt said in August the partnership would begin in early October.
Competitors, consumer advocates and customers questioned whether the deal would give Google too much control over advertising and information on the Web. Increased scrutiny by regulators could limit Google’s growth, said Ben Schachter, an analyst at UBS AG in New York.
“The biggest threat to Google is not competition, but clearly increasing government regulation and legal issues,” Schachter, who advises buying Google and Yahoo shares, said in an interview this week. “Regulatory issues are going to be a primary concern.”
No date is set for the probe to conclude, said a person with knowledge of the decision, who asked not to be named because the talks are private. Google, which handles almost two-thirds of US. Internet searches, sought to sell ads alongside some query results on Yahoo’s site, splitting the revenue.
Gina Talamona at the Justice Department declined to comment except to say the investigation continues.
If the companies proceeded before the review is complete, the Justice Department could have sought an injunction, said Blair Levin, an analyst at Stifel Nicolaus & Co in Washington.
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Google and Yahoo have said they don’t legally need the agency to approve the agreement.
''There is a material risk that the government will either say, 'We're going to court to block this deal,' or 'Unless you make the following changes, we will go to court,''' said Levin, who once served as the Federal Communications Commission's chief of staff.
Google, based in Mountain View, California, fell $3.58 to $386.91 yesterday in Nasdaq Stock Market trading. The stock has dropped 44 percent this year. Yahoo, in nearby Sunnyvale, gained 42 cents to $16. The shares have lost 31 percent.
The plan raised eyebrows as soon as it was announced in mid-June because Google and Yahoo together handle more than 80 percent of U.S. Web searches. Google accounted for 63 percent in August, compared with 19.6 percent for Yahoo and 8.3 percent for Microsoft Corp., according to research firm ComScore Inc. in Reston, Virginia.
The two companies said on June 12 they would give the Justice Department 3 1/2 months to review their partnership.
The Justice Department hired attorney Sanford Litvack as an adviser in September, signaling the government was looking into an antitrust challenge. Litvack, the department’s antitrust chief under President Jimmy Carter, headed a 2006 commission created by Congress to consider changes to antitrust law.
Yahoo Chief Executive Officer Jerry Yang chose the Google accord after rejecting Microsoft’s takeover advances earlier this year. In August, investors withheld about one-third of their votes for Yang's re-election to the board in a demonstration of their displeasure.
Microsoft, based in Redmond, Washington, has opposed the deal, saying it will give Google 90 per cent of the search-based ad business. Microsoft spokesman Jack Evans declined to comment yesterday.
Yahoo needs the Google agreement to offset the slowing online advertising market, said Ross Sandler, an analyst at RBC Capital Markets in New York.
Spending on Internet graphical ads rose 7.6 per cent in the second quarter, down from 8.5 per cent growth the previous quarter, according to TNS Media Intelligence.
“They have the most exposure of any company in that market,”' said Sandler, who predicts Yahoo shares will perform better than the broader market. The Google accord “was one area we were hoping would come together that could offset some of those concerns”, he said.
The Association of National Advertisers trade group opposed the deal, saying it would push ad prices higher. The American Antitrust Institute, a Washington advocacy group, called for restrictions to limit Google’s control of the market.
On September 29, a group of US lawmakers from California urged the government not to block the deal, saying Google wouldn’t gain power because the agreement wasn't a merger.