Google calls off Yahoo advertising deal

Google is seeking to avoid a protracted legal battle

Google is backing out of its proposed search advertising deal with Yahoo. A joint announcement on Monday morning cited "regulatory issues".

"It is clear that government regulators and some advertisers continue to have concerns about the agreement," said David Drummond, Google's chief legal officer. "Pressing ahead risked not only a protracted legal battle but damage to relationships with valued partners."

The announcement comes after four weeks of deliberation with US regulators over the terms of the deal between the two companies. As recently as this weekend, the companies were said to be refining the deal to meet regulatory concerns.

The deal would have allowed Google to place its AdWords advertising platform on certain Yahoo search results. Yahoo would have displayed the Google ads alongside its own.

Advertisers and regulators came out against the deal, which would have given the two firms an 80 per cent market share.

A search deal with Google was cited by Yahoo's management as one of the main reasons for rebuffing an acquisition effort by Microsoft. The board was already under pressure from shareholders over its decision to turn down the $33 per share offer. Yahoo's shares closed on Tuesday at $13.92.

Yahoo argued on Tuesday that the failure of the Google deal would not hamper a larger effort to rebuild its presence on the web and prove that Yahoo is better off without Microsoft.

"The fundamental building blocks of a stronger Yahoo in both sponsored and algorithmic search were put in place independent of the agreement," the company said in a statement.

"While the implementation of the services agreement with Google would have enabled Yahoo to accelerate its investments in its top business priorities through an infusion of additional operating cash flow, this deal was incremental to Yahoo's product roadmap and does not change Yahoo's commitment to innovation and growth in search."