Google pulls out of Yahoo ad plan

Regulators said deal would make partners too powerful

Government regulators said that if Google were to sell ads on Yahoo sites, it would make the partners objectionably powerful, so Google abandoned the plan Wednesday.

Google and Yahoo have been trying for months to overcome complaints from rivals and bureaucrats, and rather than fight an uphill battle, Google surrendered.

"We're of course disappointed that this deal won't be moving ahead," Google's chief legal officer wrote on a company blog. "But we're not going to let the prospect of a lengthy legal battle distract us from our core mission."

While many saw the retreat as a setback for Yahoo, some investors viewed it as an opportunity because it might force Yahoo to seek a buyer.

"Yahoo is left with three options: Go it alone, merge with AOL or do a deal with Microsoft," Jefferies & Co. analyst Youssef Squali said.

Microsoft had offered in May to buy Yahoo for $33 per share. On Wednesday, Yahoo stock rose 4% to $13.93, and Google shares dropped 7% to $342.24.

"This deal was incremental to Yahoo's product road map and does not change Yahoo's commitment to innovation and growth in search," Yahoo president Sue Decker wrote Wednesday in a memo to employees.

The Justice Department said that if the Google-Yahoo partnership materialized, the two would have controlled 90% of the domestic search-advertising market.

Among the plan's detractors were Microsoft and the Association of National Advertisers.