Yahoo-Google deal faces yet another round of concern

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.