What's Waiting For Microsoft-Yahoo in Washington? - Page 2

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Approval by whom?

Approval by whom is another question. The matter of jurisdiction among regulators remains murky. Levin believes that the Department of Justice would review the matter, given the special arrangement that stipulates its jurisdiction in any federal review of Microsoft cases. DoJ oversight of Microsoft dates back to the 2002 settlement of the antitrust suits brought against the software giant over unfair practice claims involving its operating system.

If the DoJ is an old friend of Microsoft's, the other regulatory group that could preside over the merger -- the Federal Trade Commission -- is no stranger to Google. In December, the FTC approved Google's $3.1 billion purchase of DoubleClick, a leading company that places display advertising. That approval came in spite of strident protests from Microsoft that the deal would further undermine competition in the Internet advertising market. The Google/DoubleClick review is pending in Europe, though approval seems likely.

Google commands a 58 percent share of the search market, compared with a combined 33 percent between Yahoo and Microsoft, according to online metrics firm comScore. Those two figures make a compelling argument that a merger would improve competition, Levin said, even if the combined company would have to shed some of its services, as Manishin mentioned.

No matter how it is packaged, a merger of Microsoft and Yahoo could be much more palatable to antitrust regulators than any form of alliance between Google and Yahoo, experts have warned.

It has been widely rumored that Yahoo might consider outsourcing its search or advertising placement services -- or both -- to Google in an attempt to placate shareholders without succumbing to Microsoft's takeover bid. Unless Yahoo could demonstrate that it is a "failed company," and therefore exempt from certain antitrust restrictions, regulators would be likely to scotch an alliance with Google, Manishin said.

The presidential election could also have some bearing on any review. Antitrust proceedings are supposed to be apolitical, but, as a general rule, Democratic administrations scrutinize corporate mergers more closely than their Republican counterparts, which could prolong or impose stricter conditions on approval.

This year, regardless of which party wins the White House, there will be a major personnel churn that is likely to begin before any review could be complete. "A funny thing in Washington is, people start disappearing in the last year of an administration," Levin said.

The election churn in Washington, coupled with the intense scrutiny the acquisition would be certain to face from international regulators, could push a final decision into 2009, Manishin said.