Business – Speculation about Yahoo-Google deal rampant

Elise Ackerman

Mercury News

Article Launched: 10/30/2008 06:25:39 PM PDT

As talks between Google, Yahoo and the U.S. Department of Justice drag on, investors are betting that the two Internet companies will walk away from a deal to jointly sell advertising on Yahoo’s Web sites, and that Yahoo will end up selling its search business to Microsoft.

Investors bid up Yahoo’s stock nearly 7 percent during regular trading Thursday after a flurry of conflicting news reports predicted Yahoo would soon announce another move, such as combining its search business with either Microsoft or AOL.

Representatives for Google and Yahoo issued statements saying they were continuing to talk to the Justice Department. Both companies declined to say when the talks might conclude.

“As we have said, we believe strongly that this agreement will strengthen Yahoo’s competitive position in online advertising and will help to drive a more robust, higher-quality Yahoo marketplace for our advertisers, publishers and users,” Yahoo spokeswoman Tracy Schmaler said in an e-mail.

Citing people familiar with the matter, the Wall Street Journal reported that the companies could abandon the partnership as early as the middle of next week if differences with regulators are not resolved.

Yahoo announced in June that it had agreed to display Google advertisements on its Web sites in the United States and Canada in response to certain search queries. At the time, the companies said they would delay implementation for regulatory review.

This month the companies announced they had agreed to another delay. Meanwhile, the Justice Department brought in Sandy Litvack, former head of the antitrust division, to consult on the deal, indicating that they were considering filing suit to stop it.