Google, Yahoo! Pact Looks Likely

SAN FRANCISCO -- Internet behemoth Google(GOOG - Cramer's Take - Stockpickr) is expected to work out a deal with Yahoo!(YHOO - Cramer's Take - Stockpickr), but it still has concerns over sharing proprietary information with its Web-search rival.

A source familiar with the situation said Thursday a deal is more likely to happen than not, but the two companies are trying to come up with an arrangement that would prevent Yahoo! from gaining knowledge of Google's heavily guarded system for search ads and using it to benefit its own lagging business.

Yahoo! had outsourced less than 3% of its online U.S. ads to Google in a two-week test last month, however, neither companies have revealed the results. Yahoo! made the move in an attempt to avoid an unsolicited merger with Microsoft(MSFT - Cramer's Take - Stockpickr).

Microsoft backed away from the merger, on Saturday, withdrawing its last offer worth $47.5 billion -- in part because of Yahoo!'s attempt to tie-in its ads with Google. In a letter to Yahoo!, Microsoft Chief Executive Steve Ballmer wrote that he was concerned about the two-week test with Google and any longer-term relationship that might come out of it.

"In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us," he said, maintaining that Yahoo! would fundamentally undermine its own strategy and long-term viability.

Ballmer added that the arrangement would also "raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit."

Neither Yahoo! nor Google has publicly stated where their two-week test might lead, but many analysts have speculated that a deal would help save Yahoo!'s stagnated business and help pump revenue back into the company.