Yahoo Board Discuss Microsoft Deal, Fears Scrutiny

Updated: Yahoo’s board of directors planed to meet yesterday for an update about a potential search partnership with Microsoft, but some Yahoo directors fear any tie-up with Microsoft may not survive regulatory scrutiny, according to reports.

AllThingsDigital and 24/7 Wall Street last week reported a rekindling of conversations between Microsoft and Yahoo about a search and online ad deal. In the deal, Microsoft would run its ads on Yahoo’s search engine.

There is also a display advertising element to the deal, with Yahoo taking the lead in selling premium advertising for the companies.

24/7 Wall Street reported that Yahoo will be paid $3 billion (£1.8 billion) up-front and will get 11 percent of the revenue that its searches provide after traffic acquisition costs in each of the first two years. In the third year, that figure would rocket to 90 percent.

Icahn blessed the Microsoft deal, and now it’s time for the latest details on the latest conversations. Facts are scant, but according to the Wall Street Journal’s sources:

* The meeting follows several Yahoo board calls in recent days.
* People familiar with the situation said it is unlikely that any deal would be announced Thursday. Some Yahoo directors still have concerns about striking the partnership.
* Some directors have expressed concerns with whether the deal would pass muster with regulators, according to two people familiar with their thinking.

Yahoo declined to comment on the Wall Street Journal piece for this report. Still, the latter detail about regulatory concerns stood out.

The Centre for Digital Democracy (CDD) said on Tuesday, “Microsoft and Yahoo should expect privacy and consumer groups to vigorously press regulators to closely and skeptically examine any deal.”

And CDD executive director, Jeffrey Chester told eWEEK: “Privacy groups, such as my CDD, have been collecting “string” on both companies, in expectation of a deal. We will provide this information to the FTC [Federal Trade Commission] or DoJ [Department of Justice] and the Congress. A merger that further concentrates control by a very few over the digital marketing and advertising business illustrates how quickly consolidation has emerged as a principal and worrisome feature of the Internet era.”

That response is a prophylactic promise that recalls the reactions the CDD and other parties voiced to Google’s bid to run its keyword search terms alongside Yahoo’s search results a year ago.

Google made that bid in June 2008 to thwart Microsoft’s hostile acquisition of Yahoo. Google then withdrew the bid on 5 November after the DoJ threatened to sue Google to block the deal.

According to the WSJ, it seems Yahoo fears the same treatment awaits a proposed search ad tie-up with Microsoft, which also reported fourth-quarter earnings late yesterday.

Microsoft reported a 17 percent decline in year-over-year revenue. The software giant earned $13.1 billion (£7.9 billion) for the quarter, coming in more than $1 billion below Wall Street estimates.