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EC: Extra Look at Google/DoubleClick

The GoogleDoubleClick plan might take a little longer than thought. The European Commission today announced that its review of Google's proposed $3.1 billion purchase of online advertising company DoubleClick is being moved into a more rigorous "phase two" examination.

"The Commission's initial market investigation indicated that the proposed merger would raise competition concerns in the markets for intermediation and ad serving in online advertising," the EC said in a statement.

In phase two, the EC will look at the possibility that an independent DoubleClick could have grown into a legitimate rival of Google in the online ad trade.

Although Google and DoubleClick both trade in online advertising, they employ different business models. Google's algorithm-based AdSense generates serves up clickable links based on search queries, while DoubleClick places banner ads on Web sites.

The Commission said that it will explore the possibility that combining "the leading providers of respectively, on the one hand, online advertising space and intermediations services, and, on the other hand, ad serving technology, could lead to anti-competitive restrictions for competitors operating in these markets and thus harm consumers."

The EC has 90 working days to conduct a phase two investigation, which means that a final decision can be expected in about four months. Today's deadline for the inquiry had earlier been extended from October 26.

The deal, which would join two of the biggest players in the online advertising arena, has run into intense opposition from Google competitors Microsoft and Yahoo.

In a statement, Google CEO Eric Schmidt said the company is "obviously disappointed" by the EC's decision to extend its review of the acquisition.

"We will continue to work with the Commission to demonstrate how our proposed acquisition will benefit publishers, advertisers and consumers. We seek to avoid further delays that might put us at a disadvantage in competing fully against Microsoft, Yahoo, AOL and others whose acquisitions in the highly competitive online advertising market have already been approved," he said.

In recent years, the EC has only sent about 3 percent to 4 percent of mergers to phase two investigations, according to research analysis firm Stifel, Nicolaus, and Company. Although it means that the acquisition will come under a much higher level of scrutiny, the phase two investigation does not necessarily mean that the EC will scotch the deal.

There are three possible outcomes of a phase two investigation, according to Stifel analyst Rebecca Arbogast.

The [EC] "could take a look at the merger and decided that it doesn't pose any competitive risks," approving the proposed merger as is, she told InternetNews.com.

Alternatively, the EC could decide that the competitive concerns surrounding the merger are insurmountable, and nix the deal entirely, although Arbogast views such an outcome as unlikely. "They block mergers in very rare cases," she said.

The most likely outcome will be for the EC to approve the merger based on conditions negotiated with Google and DoubleClick.

The deal has inspired a closer look in the U.S. as well. Since the merger was announced in April of this year, privacy groups have expressed concern over the merger, and a U.S. House subcommittee planned to look into the deal, in addition to the usual review by the Federal Trade Commission (FTC).