SAN FRANCISCO - Despite many Yahoo! (YHOO) shareholders, including CEO Jerry Yang , hoping again for a merger with Microsoft (MSFT) - Get Microsoft Corporation Report, getting a deal past government scrutiny may be an uphill battle.
Opponents of a combination stand ready to object, not the least of which would be
, which walked away from its online search-ad deal with Yahoo! earlier this week, spurring hope of renewed talks between Microsoft and Yahoo!.
Google has complained to the DOJ about Microsoft in the past. In 2007, it lodged an objection regarding the Windows Vista desktop search function. Google is not likely to remain silent on any deal that mirrors its own defunct alliance with Yahoo!, given Microsoft's public objections at the time.
And the 15 state attorneys general that weighed in on the DOJ's recent investigation into the Google-Yahoo! arrangement, aren't likely to smile on a Microsoft-Yahoo! alliance, either.
Bert Foer, president of the American Antitrust Institute, a Washington think tank, says he hopes the DOJ remains vigilant toward efforts by Microsoft, as well as Google, to reduce Yahoo!'s independence.
"I would not say either the Justice Dept. or AAI would automatically reject any possible deal, but both are likely to look at it with initial skepticism and a concern about increasing Microsoft's power in the marketplace," Foer says.
The DOJ may indeed raise objections, says antitrust specialist Marc Edelman, a visiting professor at Rutgers School of Law. The abandoned Google-Yahoo! contract involved an alliance between the No. 1 and No. 2 search engines, in terms of market share, which had strong anticompetitive implications, he says.
"A proposal from Microsoft to acquire Yahoo! or a similar joint venture would involve the No. 2 and No. 3 competitors." Consolidation from three market providers down to two is anticompetitive, but less clearly so when neither is the market-share leader, Edelman says.
If the second- and third-ranked competitors combine to make them more competitive against the dominant entity, "it may be perceived as being pro-competitive," Edelman says.
Antitrust law leaves wiggle room for government officials to make rulings based on the direction of political winds, which sharply changed course Tuesday with the election of Barack Obama.
"Historically, the DOJ has been a lot more vigilant in challenging mergers in Democratic administrations than in Republican ones," Edelman says.
Earlier this year, Microsoft walked away from negotiations for a full buyout of Yahoo! and, later, for a partial deal, when it couldn't come to terms with Yang, who reportedly held out for a higher price than Microsoft was willing to pay.
Microsoft has said it timed its original bid for Yahoo! to take advantage of the cushion of time remaining for review by the merger-friendly Bush administration. But the time crunch has evaporated as the Republican administration prepares to leave office.
Moreover, now that the Google and Yahoo! alliance is dead, the looming threat that may have spurred Microsoft's original bid may have vanished, Edelman says.
Indeed, Microsoft's latest official statement still makes the case that alliances in the ad-search business are anticompetitive. Microsoft General Counsel Brad Smith released a statement Wednesday saying "The Department of Justice's finding is significant for advertisers, publishers and consumers, who voiced overwhelming concern about this illegal deal to law enforcement and policymakers."
On the other hand, if Microsoft is still yearning for more search-engine market share - and the companies can come to terms - Yahoo! could make a case to Justice on the grounds that it will go out of business unless it is acquired, Edelman says. "The 'failing-company defense' means that even if a merger leads to ... anticompetitive effects, if the company being acquired would go out of business, then the DOJ is supposed to allow the transaction."
Yahoo! shares were recently up 26 cents, or 1.9%, to $14.18. Microsoft is down $1, or 4.5%, to $21.08.