Google drops Yahoo deal

Google Wednesday abandoned its advertising deal with Yahoo , citing regulatory concerns.

“Pressing ahead risked not only a protracted legal battle but also damage to Google’s relationships with valued partners,” Google said in a statement. “That would not have been in the long-term interests of Google or its users, so Google has decided to withdraw from the agreement.”

Google and Yahoo announced the deal in June and voluntarily delayed its implementation until early Octo

ber while the U.S. Department of Justice reviewed its possible antitrust implications. “Google and Yahoo worked together to structure the deal in a pro-competitive manner — making the deal non-exclusive, limiting it to the U.S. and Canada, and making sure that sensitive data would not be shared between the companies,” Google said in its statement.

Under terms of the deal, Yahoo would have run Google’s search ads with the companies splitting the revenue. Yahoo could have brought in between US$250 million and $450 million in incremental operating cash flow during the first 12 months that the deal was in place, it had said.

So, the deal’s collapse must be painful to Yahoo, which is struggling financially and has a $400 million cost-cutting plan under way that includes laying off at least 10 percent of its global staff before the year ends. The company’s third-quarter revenue rose just 1 percent over the same quarter last year, it reported on Oct. 21, and its net income plunged to $54 million from $151 million in the same period last year.

Yahoo’s fortunes could, perhaps, have turned, but it also ended negotiations with Microsoft, which wanted to buy all, or even part, of Yahoo. Microsoft offered $33 per share for the entire company early this year, setting off three months of negotiations and public statements and counter statements before Yahoo pulled the plug on any deal.

On the heels of Yahoo’s decision to end negotiations with Microsoft, the company announced the ad deal with Google, which prompted consumer and other watchdog groups, as well as industry analysts and observers, to express antitrust concerns. Consumer and watchdog groups increasingly pressured the DOJ to impose conditions on the companies, which voluntarily submitted terms of the deal to the DOJ before its implementation.

Although the deal could have been implemented without DOJ approval, the government could have filed suit to keep it from going forward.

(Additional reporting by Marc Ferranti)

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