Google Drops Yahoo Ad Deal in the Face of DOJ Action

by , 1:30 PM EST, November 5th, 2008

Google announced Wednesday that it was pulling out of an advertising deal struck with Yahoo! in June of 2008 in the face of threats from the DOJ of legal action to block the deal. Google cited concern that a protracted legal battle would be bad for Google and its shareholders, while Yahoo! issued its own statement saying the deal was worth defending in court.

The deal, announced in June, allowed Yahoo! to use Google technology to better leverage some underperforming Web properties. The DOJ's concern was that it consolidated too much online advertising power, something Yahoo! tried to address through proposed revisions to the deal, but the DOJ had said it would continue to investigate the deal.

The two companies had announced the deal even as Microsoft's aborted takeover attempt of Yahoo! was stuttering to an end, and it was hailed as an opportunity for Yahoo! to improve its financial performance. The threats of a legal battle proved too much for Google, however.

"After four months of review," David Drummond, Senior Vice President, Corporate Development and Chief Legal Officer for Google, posted on Google's Public Policy Web site, "including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long term interests of Google or our users, so we have decided to end the agreement."

For its part, Yahoo! said that it wanted to party for its right to fight, and to defend the deal in the courts.

"Yahoo today announced that Google has terminated the advertising services agreement the companies announced in June," the company wrote in a statement. "Yahoo continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court.

Mr. Drummond had his own sorrow to express, adding in his online statement, "We're of course disappointed that this deal won't be moving ahead. But we're not going to let the prospect of a lengthy legal battle distract us from our core mission."

Google traded lower following the announcement during Wednesday's early afternoon session, at $349.51, down 17.43 (-4.75%). Yahoo!, on the other hand, rose more than 7%, trading at $14.30 per share, a gain of $0.95 (+7.12%).