Digital Media

Updated 10:30 a.m. PDT with comment relating to Yahoo's new management.

Throughout 2008's on-again, off-again talks between Yahoo and Microsoft, many financial analysts declared the belief that some sort of deal--either Microsoft acquiring Yahoo outright or later just its search business--was a matter of when, not if. One report released Tuesday, though, shows at least one change of view.

Jim Friedland of Cowen & Co. said the relative financial results of Yahoo and of Microsoft's online-services business (OSB) gives Microsoft a bad bargaining position. Specifically, he said operating revenue from advertising dropped 16 percent annually for Microsoft in the first quarter of 2009, compared to a 12 percent drop for Yahoo and a 5 percent increase for Google.

"OSB's profitability has deteriorated substantially due to ballooning depreciation from underutilized data center capacity combined with unprofitable ad deals whose already poor performance has been exacerbated by the recession," Friedland said in a research note. "We believe Microsoft's underperformance in the Internet business limits its options in negotiations with Yahoo, and we have updated our view of the likely outcomes: (1) no deal--70 percent probability; (2) a search-only deal--10 percent probability; (3) an exchange of Microsoft OSB and cash for a large stake in Yahoo--15 percent probability; and (4) a purchase of 100 percent of Yahoo--5 percent probability."

Compare that to Friedland's October opinion, which predicted three possible deals: "In our view, Microsoft is unlikely to allow increasing OSB operating losses to continue in perpetuity, and we expect the company to implement one of the following strategies within the next 18 months: (1) the purchase of 100 percent of Yahoo; (2) the purchase of Yahoo's search business; or (3) the exit of its online-ad and access business, potentially by exchanging MSN/Live.com for a minority stake in Yahoo."

In addition, Friedland added in an interview Tuesday, the arrival of Yahoo Chief Executive Carol Bartz also may make things harder for Microsoft.

"The previous management team bungled Microsoft's generous acquisition offer last year. Yahoo's old management may have been more open to a search-only deal to create a near-term value driver for shareholders in order to compensate for its initial mistake," Friedland said.

"We believe that new CEO Carol Bartz will consider all potential transactions. However, Yahoo is in a solid financial position and Bartz is negotiating from a position of strength. Yahoo has a number of competitive challenges, but it doesn't need to do a deal and there are some serious strategic risks to selling its search asset," he added.

Regarding a search-only deal specifically, Friedland was skeptical.

"In order to get a search-only deal done, we think Microsoft would be forced to offer Yahoo high guaranteed minimum payments and pay a high traffic acquisition rate," he said, referring to the ad revenue shared with Yahoo. "We also believe that the integration of the Yahoo-Microsoft search assets could be challenging. Further, a search-only deal could initially result in an increase in Microsoft OSB's operating loss."

What, exactly, is behind Friedland's assessment of Microsoft's online weakness?

"Microsoft OSB generates a run rate operating loss of $2.3 billion and has been unprofitable for the past 13 consecutive quarters due to: (1) the signing of unprofitable ad partner and toolbar distribution deals with companies such as HP, Facebook, and Verizon Wireless; (2) aggressive spending on R&D, which has not yielded any killer apps...; (3) expensive marketing initiatives, like Live Search Cashback, that have not reversed share loss; (4) an aggressive build-out of data centers ahead of demand that has not materialized; and (5) a secular decline in high-margin dial-up revenues."

A year ago Sunday, on February 1, 2008, Microsoft Chief Executive Steve Ballmer told the world his company wanted to buy Yahoo.

Despite months of discussions, the deal never materialized, distressing many Yahoo shareholders and hastening Yahoo's replacement of CEO Jerry Yang with Carol Bartz. But what if Yang had gotten up on the other side of the bed one day a year ago and led his company to accept the offer?

It's impossible to know what would have happened, of course. But an exercise in speculation can be illuminating, as Philip K. Dick showed with The Man In The High Castle, a novel in which Nazi Germany and imperial Japan won World War II.

So let's suppose that Yahoo agreed to Microsoft's acquisition offer after bargaining Microsoft up a notch on the price tag to, say, $31 per share from the original $29.

First would have come the challenge of antitrust approval. But the Justice Department has shown itself to be more concerned with checking Google's power, taking Microsoft's side when it came to the ill-fated Yahoo search-advertising deal with Google.

The European Union has shown more antipathy toward Microsoft, but it, too, likely would have been spooked enough by Google's might that it would sign off. And given that the EU is only now getting around to the issue of Microsoft bundling a Web browser with its operating system, any big compunctions about Microhoo probably wouldn't have set in until 2015.

So Microsoft and Yahoo probably could have cleared that hurdle, but not quickly, and there are other details to reckon with, so let's suppose that the deal closed in August. Yahoo shareholders would have received a chunk of Microsoft shares and a wad of money that looks princely in comparison with the present $11.74 value of their Yahoo shares.

Sure, there would be some bellyaching, but all those institutional investors who were publicly griping about Yahoo's management would have been mollified--especially because revisionist history or not, the economy in August 2008 already was well on its way downhill, and Yahoo's stock likely wouldn't look so great.

So next up would have been the big challenge: integration, which, as former Sun Chief Executive Scott McNealy famously described it regarding the merger of Hewlett-Packard and Compaq Computer, is like watching two garbage trucks collide in slow motion.

Executives fond of competing pet projects would be pitted against each other, tooting their horns and trying to fend off others' with candid assessments--and Yahoo already had enough internally competing projects on its own, as documented in Brad Garlinghouse's Peanut Butter Manifesto.

But Microsoft actually saw the HP-Compaq merger as an example of how to make Microhoo happen: pick a product and go with it, rather than mess with grueling efforts to combine separate and often incompatible properties. So in all likelihood, Microsoft would have treated the acquisition with the alacrity it deserved.

Integration hell
Some parts of the Microhoo integration would have been relatively straightforward. First, top management.

Given that we've already rewritten history with Yang signing off on the deal, which implies that he would have gotten past any over-my-dead-body, burn-the-furniture attitude, he probably would have stuck around a year for appearances' sake--and he's a helpful sort of fellow who probably would have worked at least for a time to try to hand off his baby to its new parents. It wouldn't be easy, but Yang at least already has years of experience reporting to another CEO.

So which company has the better brand online? Yahoo.

Microsoft has been hobbled by its MSN vs Live branding muddiness, and the Yahoo brand has long history of great recognition. In April 2008, Yahoo's front page had 61 percent portal market share to MSN's 20 percent, according to Hitwise. But brands live a long time, and with the merger only closed for a few months by now, Microsoft probably wouldn't have had much of a chance to make big changes.

Technologically, Yahoo and Microsoft are worlds apart. Yahoo's widespread use of open-source software and fondness for the Firefox browser would raise hackles all over Microsoft. But for the sake of expediency, and to avoid spooking the Yahoo administrators and coders who actually know how the Internet property is wired, Microsoft almost certainly would have left things stand as is for at least a year. It had already had undergone the long and painful experience switching Hotmail from Unix to Windows.

Philosophically, though, Microsoft and Yahoo are converging, partly because the Internet is only becoming more important and partly because they're being driven in the same direction by Google's competitive threat. Both want sophisticated online services, both want a better search site with more traffic, both want to be a hub for people's lives on the Internet, both want to be an unavoidable part of online advertising.

Service winners and losers
The nitty-gritty of integration would have involved figuring out what to keep when the two companies had directly competing offerings. Yahoo's got the traffic, it's got the brand, and its services in general probably would have come out ahead.

Search would have been an obvious decision: keep Yahoo's search engine, redirect Microsoft search traffic to it, and get the combined engineering team cracking as soon as possible. It has more volume and more advertisers. The tricky part would be migrating advertisers to Yahoo's technology, but Microsoft would have a huge incentive to build as much critical mass as possible to try to check Google's dominance as soon as possible.

Yahoo has another big asset: Yahoo Open Strategy. Even in the real history, YOS is only just arriving now, but even a year ago, its potential was clear: it offers Yahoo users more to do online, energizing Yahoo properties by linking them together with social activity and building them into the broader fabric of the Internet.

Yahoo took ages to retrofit its site with the Yahoo Open Strategy technology, including interfaces that can broadcast user activity such as rating a movie; delaying YOS even more by mashing it up with Microsoft's online sites would have increased its risk of irrelevance.

With some big properties, a type of merger would be needed. With Yahoo Messenger vs. Windows Live Messenger, the companies already have done interoperability work, easing the pain of merging two largely incompatible networks into one.

The ugliest part would have been e-mail. Each company already has two options--Microsoft's Exchange-Outlook combination for businesses and Hotmail for consumers, and Yahoo's Zimbra for businesses and Yahoo Mail for consumers. Two e-mail offerings already are too many, and four are way too many, but e-mail is a core part of customers' lives, and it would have been hard to move gracefully.

So by this time in the companies' merger, users probably would see nothing different. But if Microsoft were smart, it would have determined that Yahoo Mail had the better technological underpinnings, in part because of Yahoo Open Strategy, and begun steering new sign-ups to it. Perhaps a migration tool would be released, or at least under way, for those who want to change manually.

With Yahoo part of Microsoft, one big project would look very different: the cloud-computing version of Microsoft Office, accessed via a browser. The combination of Microsoft's existing Office customer base and Yahoo's online customer base would have provided a much better rival to Google Docs, especially when it comes to attracting business customers who are more likely to actually pay for a reliable, supported service.

Not everything would have gone well for Yahoo projects, though. The same scrutiny that Yahoo properties are undergoing now, under the Bartz administration, would have begun months earlier and likely with less sympathetic eyes. With new bean counters in charge, Yahoo sites that didn't pass muster would have been axed with less hesitation.

Merging in an ugly economy
And that cold calculation likely would have gotten colder because of the economy.

By the time the acquisition closed, signs of the economic troubles would be apparent. Microsoft shareholders, seeing their stake diluted and their cash reserves depleted by the acquisition, could have become a significant issue. Microsoft's flexibility to acquire other companies, lavishly fund research with cash, or pursue other big-picture changes would have been significantly decreased.

Yahoo's deteriorating ad revenue would have become apparent, likely spawning a collection of Monday morning quarterbacks. After all, a better time for companies to consolidate is by snapping up weaker companies more vulnerable to economic swings. Microsoft wouldn't have been buying Yahoo at its peak, but the accountants in Redmond likely would be worrying about goodwill impairment charges.

Yahoo employees, spooked by the bad economy and Google's continued dominance despite it, might have been happy about having a more stable employer and a better shot at taking on Google, cultural clashes notwithstanding. But the reality of layoffs would likely have swept away many feelings of security.

Yahoo and Microsoft each announced significant cuts in the real world--1,520 for Yahoo and up to 5,000 for Microsoft--because of the economy. Combined with the inevitable redundancies from the merger, the job cuts probably would have come earlier for Microhoo and might well have been followed by more, increasing the total.

Worse, that unpleasantness would have taken place before any of the fruits of the integration were visible, deepening morale issues.

So by this time in our alternate history, there would be plenty of unpleasant news. Google wouldn't be put in its place, the benefits of the Microhoo merger wouldn't be apparent, and the world would look very similar to today's, minus a YHOO ticker symbol on Nasdaq. But the seeds of the merger's fruit would be planted, and if Microsoft played its cards right, Google would be reckoning with a more formidable competitor.

Carol Bartz, Yahoo's brand-new CEO, revealed her first public assessment of embattled Yahoo on Tuesday, arguing the company is stronger as a whole than as the sum of its parts.

"This is a fantastic Internet property, and it doesn't deserve everybody trying to pick it and pull it apart," Bartz said in a conference call after Yahoo reported mixed fourth-quarter results. Looking at statistics such as how many people use Yahoo, how long they stay on the site, and how they value its properties, she said, "This is not a company that needs to be pulled apart and left for the chickens."

Yahoo CEO Carol Bartz

(Credit: Yahoo)

The obvious question is what that means for the possibility of selling the search business to Microsoft, a possibility that emerged last year, though the companies couldn't agree to terms. Bartz wouldn't rule out that transaction nor declare it a great idea, but her tone left the impression she'll need more convincing.

Specifically, she said she's not going to put the interests of short-term shareholders looking for a stock pop ahead of the long-term investors who are more patient for the company to improve its operations.

"It's my job to make sure that as a company we look at anything that makes sense long-term for the company and creates shareholder value. It's very easy to have different shareholder interests. Some are short-term so they can jump out, and some (are) long term. It's our job to make sure we're looking at the bell curve of shareholder value," she said. "Everything is on the table."

Whither search?
She shared a smidgen of thinking about the search business specifically, though she qualified it with the comment that Yahoo would have to invest in it regardless of whether the company wanted to keep it or sell it. For one thing, it's "extremely useful" to understand users' intent through searches. For another, query growth, stemmed market share losses to Google, and faster introduction "increases the value of the product. It's good for our brand and our shareholders, no matter what our long-term plan."

Chief Financial Officer Blake Jorgensen also went into some detail about the search business.

"We're building off the road map, first with Panama (Yahoo's search ad sales system) and now with our continued innovation with Search Assist, SearchMonkey. It's helped us stabilize the share," Jorgensen said. And Yahoo's numerous and often high-traffic properties help keep search ticking, he added.

There were some encouraging statistics for Yahoo's search business. Revenue increased 11 percent globally and 18 percent in the United States, Jorgensen said. In the United States, search queries increased 10 percent compared with the year-earlier quarter. Overall, revenue per search grew in the high single digits, he said.

But not all is well. Google last week was relatively bullish about its search-ad business, reiterating its argument that the directly measurable return on advertising investments make it stronger during times of economic trouble. Jorgensen, in contrast, offered a note of caution that the economy means people aren't searching for things to buy as often. "We're tending to see cost-per-click growth, but click yields and fewer commercial queries are starting to impact revenues in general," Jorgensen said.

In defense of Yahoo
She continued with the assertive tone set in her introductory press conference just two weeks ago, coming out guns-a-blazin' as a strong Yahoo advocate, someone who's willing do what's right rather than come up with potentially damaging quick fixes.

"I didn't come here to sell the company," she asserted.

The stock market responded with a collective optimism to Bartz's debut and the financial results, pushing the stock up 59 cents, or 5 percent, to $11.93 in after-hours trading.

There was no question who's in charge of the company now. Former CEO Jerry Yang was present during the conference call, but for whatever reason didn't make so much as a peep during the question-and-answer session.

Wooing younger users
Microsoft isn't the only company Bartz is monitoring. Facebook, too, with its younger users, also is on the list. As the mother of a 20 year old, "I'm very familiar with Facebook," Bartz said.

And while it's nice to have the young users on your site, "They do grow up," Bartz said. People in their late 20s are "much more interested in Yahoo Finance. They don't have all day to put pictures up and chat because guess what, they're off the dole," she said.

And, she added, that age group is easily jaded. "Just as MySpace was hot and it moved to Facebook, who knows what's next? We have a lot going on. We're dabbling in it with Yahoo Open Strategy. I was surprised. We have a demographic that serves the entire Web. I think we can get some growth in other areas," she said, mentioning that aging baby boomers are less technically intimidated than today's senior set.

Bartz has a lot of work ahead of her and didn't pretend otherwise. Specifically, she pointed to communication problems within the company, a muddy presentation of its strategy, slow decision-making, and a lack of focus. She'll "move swiftly" to right these wrongs, she said. And of course the economy is dismal.

The sober tones seemed present more to assure the audience that she wasn't a pollyanna. Overall, it seemed outweighed by the kind of optimistic tone one might expect from a new CEO. Twice she said Yahoo's prospects look better from within the company than from the gloom-and-doom press view she got in 2008.

"If we have strong products, we will attract the audience that just beats everything," she said. "It's not just about search. It's about people coming for content and information."

Billionaire investor-activist Carl Icahn opposes selling just a portion of Yahoo, telling CNBC on Wednesday that he believes the company's stock in undervalued.

Carl Icahn opposes a partial sale of Yahoo, saying the company is undervalued.

(Credit: CNET News)

"I don't think there is very much to having a partial bid for the company, at least as a large shareholder," Icahn said.

Icahn, who is on Yahoo's board of directors, made the statement while addressing rumors that former AOL Chief Executive Jonathan Miller is trying to raise money to acquire all or a part of the Internet pioneer. Miller reportedly believes he can do a deal worth about $20 to $22 per share.

Icahn, who purchased an additional 7 million shares of Yahoo last week, told CNBC that he spoke recently with Miller about the possibility of buying Yahoo.

"Right now I would be against that and I pretty much told Jonathan that," Icahn said. "I think the stock is very undervalued."

He also said that while he had not spoken with others on the board about a partial sale, he thought they would agree with him.

In recent months, Yahoo shares have fallen, along with the rest of the stock market, and have been hovering around the $10 mark--a far cry from the $33 a share Microsoft offered in its takeover bid for the company earlier this year.

Icahn was also queried about who he thought would make a good chief executive for the search pioneer after the recent resignation of CEO Jerry Yang. Icahn said the company needed a CEO who is "a hard-nosed, cost-cutting kind of guy," but did not mention any candidates by name.

He also emphasized that he would still like to see a search deal worked out with Microsoft.

Yahoo has been under great financial pressure lately. In addition to Yang's resignation, there has been a parade of executives abandoning the troubled search company.

After reporting a 64 percent drop in net income and warning that the advertising market is softening, Yahoo announced in October a layoff of at least 1,430 by the end of 2008. The cut follows another in which about 1,000 Yahoo employees lost their jobs in February.

Yahoo's stock rose 8 percent to $11.64 Tuesday after The Wall Street Journal reported former AOL Chief Executive Jonathan Miller is trying to raise money to acquire all or a part of the Internet pioneer.

Miller believes he can do a deal worth about $20 to $22 per share, according to the report, which cited unnamed sources. Those sources said Miller is trying to raise money from private equity investors and sovereign wealth funds.

A Times of London report over the weekend also said Miller was working on a deal, but that report limited the scope to Yahoo's search business and said the ultimate owner of the assets would be Microsoft. The Wall Street Journal report didn't uncover a Microsoft connection.

Miller runs a venture capital fund called Velocity Interactive Group.

Yahoo and Velocity Interactive didn't immediately respond to requests for comment.

With the Monday evening announcement that Jerry Yang would step down as its chief executive, Yahoo's search for his replacement will not only be closely watched by its investors but also by the folks at Microsoft, according to sources.

In part, two people industry players and headhunters point to as possible good fits already have Redmond running through their veins. One is former Microsoft online and Windows chief Kevin Johnson, who recently left to take a CEO post at Juniper Networks, and the other is Brian McAndrews, senior vice president of Microsoft's Advertiser and Publisher Solutions Group, who came by way of the Aquantive digital-advertising acquisition.

"Kevin is the kind of guy that Yahoo needs," a Microsoft source said. "He has excellent execution, understands technology, is a hard worker, and people like working with him."

The source did note that it may be difficult to lure Johnson to Yahoo, given that he only recently started at Juniper, which may make McAndrews a stronger candidate.

"Take a sharp guy like a Brian McAndrews, who built up Aquantive and later sold it to Microsoft. He would be a good fit for Yahoo," said David Nosal, who heads up executive search firm Nosal Partners.

A digital-media executive also pointed to McAndrews as an excellent fit for Yahoo's top job, given his prior experience as a CEO in the digital-media industry.

Yahoo is seeking to replace its embattled CEO, who will be stepping down from his post after a successor is found. The company has hired executive search firm Heidrick & Struggles International to assist it in its search.

Microsoft declined to comment on Yang's announced resignation plans.

The Internet search pioneer also has an internal CEO candidate, its president and former Chief Financial Officer Sue Decker.

"Sue received great press as Yahoo's CFO, but her president's role has not generated as much good press," the Microsoft source noted, adding that it will be interesting to see whether Yahoo will use the CEO search process as a means to validate its selection of Decker as the CEO or to undertake an extensive CEO search.

One major Yahoo institutional investor hopes that Yahoo will name an outsider as Yang's replacement.

"I hope (Decker) doesn't get it. She's been part of the problem," the investor said, noting that Yang's CEO resignation is long overdue. "They need to clean house."

Yahoo's investors have been incensed since Microsoft pulled its $33-a-share buyout bid for the entire company last May. Yahoo had rejected the offer, countering with a proposal for $37 a share, before Microsoft broke off talks.

The Microsoft source said it will be interesting to see whether Yahoo names a CEO with a strong background in marketing, technology, or business.

Executive recruiter Nosal said he could think of several people from Google, four from Microsoft, and some from multimedia advertising companies who could serve as Yahoo's CEO.

"There are about 15 to 20 people around the world who could (fill) this role," Nosal said, adding that the search process could take approximately 50 days.

See also:
• Yahoo CEO Yang to step down
• Yang's travails: A Yahoo timeline
• A pity for Yahoo that John McCain didn't win
• Jerry Yang memo to staff about stepping down
• Microhoo revisited: Would it be a search-only deal?

Is Jerry Yang getting eager to make a deal?

The Yahoo chief might well be reeling from Google's decision Wednesday to pull the plug on a search-ad partnership with Yahoo that would have given Yahoo major new revenue but that raised antitrust concerns. Google said the proposed partnership wasn't worth the headache after the Department of Justice notified Yahoo and Google that if they proceeded with their controversial search agreement, it would file a lawsuit to block the deal.

Yahoo CEO Jerry Yang talks about the Microsoft deal that got away.

(Credit: Josh Lowensohn/CNET News)

Now it appears that Yang is leaving the door very much open for an old suitor: Microsoft.

During a moderated "conversation" at the Web 2.0 conference in San Francisco, Yang said late Wednesday that, "To this day, I have to say that the best thing for Microsoft to do is to buy Yahoo. I don't think that is a bad idea at all..."

But...wait for it...

"...at the right price, whatever the price is, we are willing to sell the company," he explained. "We were ready to negotiate, we wanted to negotiate a deal, and we felt that we weren't that far apart. But at the end of the day, they withdrew and they since have been very clear about not wanting to buy the company."

Yup, there's that tired, old "right price" qualifier that scuttled the deal at $33 a share and angered more than a few stockholders and employees.

If Microsoft were willing to do the deal today, it would doubtlessly be at a more bargain-basement price--say closer to half the original offer?

But maybe it's time for Yang to accept that he let a good catch get away.

Update at 1:44 p.m. PDT, with Yahoo's closing stock price and correction to the acronym for the U.S. Public Interest Research Groups (PIRG).

A consumer group, legislators, and Wall Street weighed in this week on Yahoo's proposed search advertising deal with Google, as the partnership underwent another round of dishing.

With the companies having granted the Department of Justice two extensions to say yea or nay on the deal--one just last week--a new go-around of public commentary was to be expected.

JPMorgan analyst Imran Khan issued a research note on Wednesday that re-examines the potential of Yahoo reviving a search-only deal with Microsoft, which the Internet search pioneer rejected back in July. Previously, Microsoft had offered to buy all of Yahoo for $33 a share, but then walked away from the table after Yahoo countered with $37 a share.

Khan, noting the unlikelihood the Department of Justice will sign off on the Yahoo-Google partnership in its current form, said:

We estimate that Yahoo could gain an additional $725 million in annual OCF through a Microsoft search deal. In our estimates, outsourcing search to Microsoft could lead to $1.4 billion in cost savings which would more than offset our estimated revenue loss of $649 million resulting from affiliate revenue loss and the revenue split with Microsoft.

Yahoo would be more focused and nimble. Without its search business, Yahoo would be very clearly positioned as a content and display advertising entity, thereby clarifying and defining its purpose to advertisers and users. Additionally, the one time cash infusion of $1 billion (as was made in a previous offer) from the search asset purchase would allow the company to be nimble in buying back shares at depressed prices, making strategic acquisitions, and making more targeted headcount cuts.

Yahoo had previously noted it expected to generate $800 million in its first year of a Google search advertising agreement, in which it would allow Google to run its ads on the Yahoo search pages.

Meanwhile, Sen. Joe Barton, who heads the congressional committee on energy and commerce, sent a letter on Tuesday to the head of the DOJ's antitrust unit, Thomas Barnett.

In his letter to Barnett, Barton writes:

I am writing you to request that the Department of Justice (DOJ) thoroughly investigate issues of competition and privacy that Yahoo failed to address fully in responding to questions about the online search advertising partnership agreement between Google and Yahoo. I understand DOJ is reviewing the agreement, and I believe the issues in question are pertinent to DOJ's review.

Given that matters relating to commerce and the Internet are part of the oversight and legislative responsibilities of the Committee on Energy and Commerce, I asked minority committee staff to inquire into the Google-Yahoo search advertising agreement. Specifically, I am concerned about the adverse effects such a partnership could have on competition and pricing within the online search advertising industry.

Expressing similar concerns is the U.S. Public Interest Research Groups (PIRG), a consumer group that opposes the proposed partnership. PIRG, which does not accept any corporate donations, is sending opposition letters to both Barnett and U.S. Attorney General Michael Mukasey, said Amina Fazlullah, a PIRG spokeswoman.

She noted the organization is concerned that the deal could leave Yahoo in a weakened state. PIRG is concerned that companies in the Internet industry, when weakened, may take steps to regain a competitive edge by sharing an increasing amount of their users' information, thereby, affecting their privacy.

As a result, PIRG has been particularly interested in acquisitions in the Internet industry and their affects on those competitors which are not part of the transactions.

Yahoo, however, contends its deal is misunderstood and would not result in less competition or higher prices for advertisers. The Internet search pioneer has previously said it has no plans to exit the search advertising market should the deal be implemented.

In the meantime, Yahoo's shares Tuesday came within close range of falling into the $10 a share range, setting a new five-year low of $11.25 a share during intraday trading before ending the day at $12.36 per share. Yahoo's shares closed Wednesday down 1.8 percent to $12.14 a share.

Yahoo and Google have extended their Wednesday deadline for antitrust regulators to issue a decision on whether to block the controversial search advertising deal to proceed, according to a source familiar with the talks.

And at this point, it remains to be seen whether a definitive decision to block the agreement, or allow it with remedies as part of a settlement, will occur before the Thanksgiving holiday.

"Wouldn't it be nice to get it resolved, one way or another, before Thanksgiving?" said the source.

Previously, a deadline had been set for Wednesday for antitrust regulators to make a decision on whether to challenge the deal, or allow it proceed. That revised deadline was extended from October 8, in order to give regulators additional time to review the search advertising agreement.

Under the agreement, Yahoo's search result pages would also include ads from Google's advertisers. Yahoo previously noted it expects to generate $800 million in revenue in its first year from the non-exclusive deal and that Google's ads would likely appear on its search pages that have few to no ads from Yahoo advertisers.

But advertisers have voiced their opposition to the deal, citing concerns that prices could rise and that Yahoo may one day opt to exit the search advertising business altogether. Those concerns are similar to those voiced by federal antitrust regulators, sources previously have said.

Although the companies are again extending the deadline, such a move is somewhat common when the parties are hashing over things. One source had noted that companies will often grant regulators as much time as they need to review a deal, rather than forcing their hand, if it appears their decision will be unfavorable to the companies.