Microsoft cites Yang comments on Google-Yahoo deal

By Diane Bartz

WASHINGTON (Reuters) - A top Microsoft Corp executive said Yahoo Inc's advertising search partnership with Google Inc would leave only one major player in the Internet search business, and said he had been told as much by Yahoo's own chief executive last month.

Testifying at a congressional hearing, Microsoft General Counsel Brad Smith said that in a June 8 meeting in San Jose Yahoo chief Jerry Yang described Internet search as a "bipolar" market, with Google on one side and Yahoo and Microsoft on the other.

"(Yang) said 'If we do this deal with Google, Yahoo will become part of Google's pole and Microsoft,' he said, 'would not be strong enough in this market to remain a pole of its own,'" Smith told the Senate Judiciary Committee's antitrust subcommittee on Tuesday.

He said Microsoft executives met later in a separate conference room. "We sat down and we said, 'We can't believe that Jerry just said those things.'"

Smith used the anecdote to bolster Microsoft's contention that the Google-Yahoo deal would violate antitrust law.

"That's pretty explosive stuff and we'll have to consider that," agreed the antitrust subcommittee's chairman, Democratic Sen. Herb Kohl of Wisconsin.

Yahoo General Counsel Michael Callahan, also testifying at Tuesday's hearing, said he had been at the June 8 meeting but he disputed Smith's description of what Yang had said.

"I disagree with how Mr. Smith characterized what Mr. Yang thinks about the market," said Callahan. "Our board of directors made a conscious decision to stay in search."

Kohl shot back: "Clearly what you said contradicts what your boss said."

Google, with more than 60 percent of the Web search market, and Yahoo, with 16.6 percent, announced a deal on June 12 that would allow Yahoo to place Google advertisements on its site and collect the revenue. It has raised antitrust concerns because of their dominance of the market.

The Yahoo-Google partnership was widely seen as an effort by Yahoo to fend off Microsoft's on-again, off-again efforts to buy all or part of Yahoo.

Google and Yahoo have refrained from consummating the deal while they wait for an opinion from antitrust authorities at the Justice Department. Several state attorneys general were also looking into the arrangement.

Callahan accused Microsoft of teaming up with investor Carl Icahn to force down Yahoo's price.

"Microsoft ... has turned to activist shareholder Carl Icahn, in the apparent hope that this will force a fire sale of Yahoo's core strategic search business," he said.

Icahn is leading a proxy campaign to dump Yahoo's current management and board at the August shareholder meeting.