Microsoft-Yahoo deal seen squeaking by regulators

WASHINGTON Thu Jul 30, 2009 3:46am EDT

Microsoft CEO Steve Ballmer and Yahoo CEO Carole Bartz in a combination image. REUTERS/File

Microsoft CEO Steve Ballmer and Yahoo CEO Carole Bartz in a combination image.

Credit: Reuters/File

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WASHINGTON (Reuters) - Microsoft's 10-year Internet search deal with Yahoo will get a hard look from Obama administration antitrust enforcers but will probably squeak through.

While the partnership knocks the number of competing search engines down to two, from three, antitrust experts said this might have happened anyway. The partners say they will join to create a stronger competitor to Google Inc.

"The question is: is it OK? Is two enough?" said antitrust attorney John Briggs of Axinn, Veltrop and Harkrider LLP.

"I think this deal would be really easy to get through in the Bush administration. They wouldn't even look twice at it," said Briggs. "This administration is going to look twice at it, and probably in the end let it through."

Microsoft's Bing search engine will power search queries on Yahoo's sites. The companies said they expected the deal to be "closely reviewed" by regulators, but were hopeful it would close in early 2010.

Google has 65 percent of the search market, versus Yahoo, with 29.6 percent, and Microsoft's 8.4 percent, according to comScore.

"Without this deal, I think it would be really unlikely that you'd have a market with three robust search providers in 10 years," said Beau Buffier, an attorney with Shearman & Sterling LLP.

Senator Herb Kohl, whose subcommittee oversees the Justice Department's Antitrust Division, said the panel was concerned that advertisers would face higher rates and that there might be less innovation because of the agreement.

"The deal between Yahoo and Microsoft -- industry giants and direct competitors in Internet advertising and search markets -- warrants our careful scrutiny," he said in a statement. "The implications of this proposed joint agreement will be closely reviewed by my subcommittee."

But Evan Stewart, an antitrust expert with Zuckerman Spaeder, said the deal creates a stronger competitor to Google.

"This is good for the competitive marketplace," said Stewart. "It will be easier to get access to this advertising space at presumably more competitive rates."

The length of the deal means that regulators will likely view it almost as a merger, said Richard Brosnick of law firm Butzel Long. "In Internet time, that might as well be 100 years. A 10-year exclusive license might as well be an acquisition."

Google is expected to be watching the deal closely. It dropped its own advertising deal with Yahoo last year under pressure from the Justice Department.

Microsoft and advertisers had lobbied the department hard to stop Google from gaining further market power.

Google, so far, is saying little publicly about the Microsoft-Yahoo deal.

"There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users," said Google spokesman Adam Kovacevich in an emailed statement. "We're interested to learn more about the deal."

The Microsoft-Yahoo deal was inevitable following Yahoo's rejection of a Microsoft takeover, the collapse of the Google-Yahoo deal and upheaval in Yahoo's executive suites, said Stewart, the attorney with Zuckerman Spaeder.

"Now that the new management is up and running, she (Carol Bartz) is revisiting the basic strategic wisdom of entering into a strategic partnership with Microsoft," he said. "This is like the directors cut. This is a similar movie but with different scenes added or changed."

(Reporting by Diane Bartz; Editing by Tim Dobbyn)

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