Google clout seen aiding Microsoft antitrust OK

WASHINGTON/SAN FRANCISCO (Reuters) - Google Inc so dominates the online search and advertising market that regulators are seen approving any merger of Microsoft Corp and Yahoo after giving the deal a close look, antitrust experts said on Friday.

The world's biggest software maker sent a letter to Yahoo on Thursday offering $44.6 billion for the Internet media company. Yahoo said on Friday it will evaluate the offer.

Evan Stewart of Zuckerman, Spaeder LLP said antitrust approval of such a deal was likely because Google was so big, the information technology field was changing so fast and barriers to entering the market were relatively low.

"At the end of the day, it's hard to see how they (regulators) could reject this," said Stewart.

William Mahnic, who teaches mergers and acquisitions at Case Western University, agreed, saying Yahoo's and Microsoft's market shares together total considerably less than Google's.

"The big thing here is that Google has such a huge share," said Mahnic, who forecast the deal would be approved with neither company forced to divest any assets.

Antitrust enforcers on both sides of the Atlantic typically take a hard look at any merger which knocks the number of major competitors in an industry down from three to two because of the danger the remaining entities could raise prices.

In 2001, HJ Heinz Co called off its acquisition of Beech-Nut after regulators balked because it would have merged the No. 2 and No. 3 baby food makers.

But creating a stronger competitor to Google could appeal to enforcers.

Google's 77 percent share of the global Web search market, according to Internet audience researcher comScore, vastly overshadows Yahoo, which is second at 16 percent. Microsoft is a distant third at 3.7 percent.

"You want more than one dominant player," said Edward Henneberry, co-chairman of Heller Ehrman LLP's European competition practice, in a telephone interview from London.

At a San Francisco antitrust conference, Thomas Barnett, the Justice Department's assistant attorney general for antitrust, was asked about the possible deal. "We are aware of it," he said tersely.

The deal was announced as the Bush administration enters its final year. Some legal experts say the Bush administration's antitrust regulators have been friendly to mergers and forecast a change if a Democrat wins the White House in the November election.

Sen. Herb Kohl, a Wisconsin Democrat, said the Senate antitrust subcommittee he chairs would hold hearings if Yahoo accepted Microsoft's offer.

"We will need to scrutinize the deal carefully to ensure that it will not cause any harm to the competitiveness of what has been a vibrant high tech marketplace, nor negatively impact the privacy rights of Internet users," Kohl said in a statement.

But Henneberry said he expected that both European and U.S. regulators would put aside concerns expressed by privacy advocates. "Privacy issues aren't really competition issues."

APPROVAL IN EUROPE?

Microsoft's battles with the European Commission over abuse of market dominance could taint an application to merge with Yahoo, said Catriona Hatton of law firm Hogan & Hartson.

"It's always difficult going into a deal if you have got a sort of unhappy history in a way with the commission," said Hatton, who forecast divestments could be in the offing.

Microsoft and others argued to the European Commission that it would be a bad idea for Google to buy DoubleClick because they would make Google, already a giant in Web advertising, even more powerful.

These critics reasoned that Google has a dominant share of Web searches in many European countries and should be prohibited from increasing its power over Web advertising, which could give it the power to raise prices.

The commission was not persuaded and is expected to clear the Google-DoubleClick deal. The question is whether similar arguments could be used effectively against Microsoft's own purchase of Yahoo.

In San Francisco, Competition Commissioner Neelie Kroes was asked whether approval in Europe would be delayed by the commission's finding in 2004 that Microsoft abused its market dominance.

"No, absolutely not," she replied.

The European suit, which resulted in a $685.4 million fine, followed a legal battle between Microsoft and the U.S. Department of Justice. That fight was settled by a 2002 consent decree in Washington which was extended this month.

(Editing by Tim Dobbyn/Andre Grenon)