Yahoo-Google deal may flounder, analyst says

Google T-Mobile G1 mobile telephones are seen on display at a T-Mobile store in New York City in this October 22, 2008 file photo. Google may decide to scrap its proposed partnership with Yahoo rather than accept government-imposed antitrust restrictions on it, according to two sources familiar with the companies' discussions.

SAN FRANCISCO (Reuters) - The new search advertising deal between Yahoo Inc and Google Inc is unlikely to win U.S. antitrust approval, and therefore may open the door to a new bid for Yahoo from Microsoft Corp, an analyst said on Tuesday.

Under the revised deal the two companies have proposed to the Justice Department, Yahoo and Google significantly scaled back the scope of their agreement, including shortening the length of the partnership to two years from 10, a source told Reuters on Monday.

Sanford Bernstein analyst Jeffrey Lindsay called the revised offer a "desperate gambit." He said in a note that he expected the Justice Department to defer a decision until next year, and expects the agreement to eventually fall apart.

Should that happen, Microsoft might renew its effort for Yahoo with an offer of around $20 a share, Lindsay said. Microsoft had offered as much as $33 per share for Yahoo earlier this year.

"We expect the DoJ to defer a decision to next year and believe they are preparing for an antitrust showdown with Google," Lindsay wrote. "We expect the Google-Yahoo deal to founder, leaving Yahoo unable to acquire AOL's portal and stuck in a stand-alone value trap."

Yahoo has been in talks with Time Warner Inc about the advertising and content assets of AOL.

Shares of Yahoo rose 4.71 percent to close at $13.35, while Google shares climbed 5.9 percent to $366.94. Microsoft added 4.02 percent at $23.53 on Nasdaq.

(Reporting by Gabriel Madway, editing by Richard Chang)