Google pulls out of Yahoo ad deal, Microsoft waits

In the latest blow to Yahoo, Google has backed off its plan to form an advertising partnership with the smaller web company. As the AP reports, the decision comes after the U.S. Justice Department vowed to block the Yahoo deal in order to "preserve competition" in the online advertising market. Google Chief Legal Officer David Drummond said in a statement, "We're not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on." Google had already raised a few eyebrows among regulators with its purchase of online ad firm DoubleClick in March.

The AP notes that Yahoo counted on the Google deal to add $800 million to its revenue and "placate shareholders still riled up about the failure of the Microsoft deal." As you might recall, the company gave activist investor Carl Icahn a seat on its board after he threatened to get Yahoo's directors fired in order to resume merger talks with Microsoft.

Speaking of Microsoft, Google's arch-nemesis has reportedly "spent a lot of time and money trying to keep Google and Yahoo from coming together." The AP says the folks in Redmond tried to persuade regulators that the deal would hurt competition in the ad market, and they urged other advertisers to file formal complaints. With Google now out of the picture, Yahoo may have no choice but to come crawling back to Steve Ballmer—and agree to a buyout for less than the $33-per-share he originally offered. Yahoo's share price currently sits at around $14.31, up about a dollar on hopes of a deal with Microsoft.

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