Google pulls out of search ad deal with Yahoo

By Diane Bartz

WASHINGTON (Reuters) - Google Inc pulled out of a search advertising partnership with Yahoo Inc due to regulatory objections, causing Yahoo shares to rise as investors hoped the move could lead to a resumption of deal talks with Microsoft Corp.

Yahoo denied rumors it was in talks to sell itself to Microsoft for between $17 and $19 a share but its shares were over 8 percent higher. "Not true" said Yahoo spokeswoman Tracy Schmaler, who also denied a rumor that Yahoo CEO Jerry Yang was on his way out.

The U.S. Justice Department said on Wednesday it had told Google it planned to file a lawsuit to block the deal, under which Google would have placed its more lucrative ads on Yahoo searches.

"Had the companies implemented their arrangement, Yahoo's competition likely would have been blunted immediately with respect to the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads," the government said.

Yahoo regretted Google's decision, saying it was "disappointed that Google has elected to withdraw from the agreement rather than defend it in court."

Between them, Google and Yahoo had more than 80 percent of the web search market in August, according to comScore Inc.

Microsoft had lobbied hard against the partnership which Yahoo initially struck with Google as a way to fend off an unsolicited takeover bid from Microsoft.

"They didn't want the Yahoo-Google deal to go through because they wanted to be in control of Yahoo's assets instead of Google being in control," said Youssef Squali, an analyst at Jefferies & Co.