Bad blood may color EU view on Microsoft-Yahoo

By Huw Jones

BRUSSELS (Reuters) - Bad blood between the European Commission and Microsoft could affect the EU scrutiny of a bid by the software giant for Yahoo, legal experts said on Friday.

Microsoft has made an unsolicited $44.6 billion offer to buy Yahoo and is confident of winning regulatory approval. Yahoo said its board will evaluate the offer.

Clearance from the European Commission as the EU's top competition regulator would likely be needed for a merger of this size and cross-border impact, though it declined to make any comment on Friday.

Last year, the Commission won a bruising court battle against Microsoft that forced the software giant to comply with a landmark 2004 antitrust decision by the EU executive.

Lawyers said Brussels may welcome increased competition against Google but privacy will be a concern.

"I think it's always difficult going into a deal if you have got a sort of unhappy history in a way with the Commission," Catriona Hatton, a partner at law firm Hogan & Hartson, said.

"It's not the best way to come in with a merger deal," Hatton said.

Hans Friederiszick of ESMT Competition Analysis, part of the Berlin-based international business school, said competition and privacy will loom large for Brussels.

"This merger will reduce the number of search engine providers with significant global reach from three to two, paving the way for a tight duopoly in these markets," said Friederiszick, who is a former senior official at the Commission's competition unit.

"In turn, Google may welcome this move as it allows Google to argue that its likely dominant position is contested by an equally strong player," Friederiszick said.

"In any case, one barrier for the proposed merger to get approved may be the relationship between the Commission and Microsoft, following its strategic use and abuse of interoperability," he added.

Brussels was also likely to stress that Yahoo's portal services should not be bundled up with Microsoft's Windows operating system on personal computers, said Christopher Thomas, a partner at Lovells law firms.

Jonathan Zuck, president of the Association for Competitive Technology, which has received support from Microsoft, said the combined market share in online advertising and searches would still be significantly lower than Google's.

"The Commission obviously has to review a number of different aspects of the merger. Given their pro-consumer bent they are going to have to think about competition on privacy issues, for example," Zuck said.

A merger was probably doable but remedies of some sort would be likely, Hatton said.