Google, Yahoo: Seeking Alternatives

By Reuters - Print this article Print

The two Internet companies have submitted a reworked proposal to the U.S. Department of Justice that shortens their partnership to just two years from 10 years, the source said. The revised deal also caps the percentage of search revenue that Yahoo can collect from Google at no more than 25 percent, and lets Google advertisers opt out of being placed on Yahoo, the source said.


Yahoo has been trying to build an independent growth strategy after fending off Microsoft's hostile bid, even as its stock price has plunged to under $13, well below the $31-a-share the software company offered in February.

The first piece of its alternative strategy was to strike a deal with Google, once its archrival. Yahoo also continues to hold talks with Time Warner Inc about buying the advertising and content assets of its AOL division, sources have told Reuters.

In the meantime, several executives have also left Yahoo in recent months amid uncertainty about its future.

Yahoo said on Monday it will appoint Jeff Dossett, a former Microsoft manager, to lead its U.S. media business replacing Scott Moore, who is leaving the company to pursue other opportunities.

Yahoo also said that Alan Warms, the general manager of Yahoo News, is quitting and will be replaced by Neeraj Khemlani, Yahoo's vice president of programing.

The search ad deal, which would let Google place ads alongside Yahoo's search results, was expected to boost Yahoo's cash flow by up to $450 million in the first year, the companies had said in June.

Needham & Co's May said the benefit to Yahoo might be far less -- between $80 million and $100 million -- than the original target, bumping up the web company's share price by only a couple of dollars if regulators let the deal through.

The deal has run afoul of advertisers who fear high prices because Google and Yahoo dominate the U.S. Web search market. Google's market share widened to 63 percent in August, while Yahoo dropped to 19.6 percent and Microsoft slipped to 8.3 percent, according to comScore Inc.

"It sounds like they are addressing legitimate concerns of the Justice Department," said Evan Stewart, an antitrust attorney with Zuckerman Spaeder LLP. "This is a negotiation ... It sounds like it's getting closer."

The revised deal terms were first reported by The Wall Street Journal.

While the Justice Department does not comment on pending merger matters, there had been hints that it planned to challenge the partnership -- particularly by hiring veteran litigator Sandy Litvack to work on the probe.

Litvack was the department's antitrust chief under President Jimmy Carter and was Walt Disney Co's former vice chairman.

Shares of Google and Yahoo were little changed in extended trading after news of the modified proposal broke. Google edged up $1.51 to $348 from its $346.49 close, while Yahoo slipped 7 cents to $12.68 from its $12.75 close.

(Editing by Carol Bishopric, Tim Dobbyn, Gary Hill)

This article was originally published on 2008-11-04
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