Roadblocks are mounting on a vital route for Yahoo's revival: the company's advertising partnership with once-rival Google.

Share story

Roadblocks are mounting on a vital route for Yahoo’s revival: the company’s advertising partnership with once-rival Google.

The European Union (EU) said Monday that it was reviewing the deal for antitrust implications there, adding to recent public criticism from major U.S. advertisers and a worldwide association of newspapers.

In addition, the U.S. Justice Department is considering a formal challenge to the partnership, through which Google would broker some text ads for Yahoo’s search engine.

Yahoo has the most to lose financially if the deal is delayed or scuttled. The Sunnyvale, Calif., Internet company struck the deal as an alternative to Microsoft’s hostile takeover bid, saying the Google deal could help Yahoo remain independent while boosting its cash flow.

But the growing opposition to the deal also might be opening up some potholes for Google. By extending a lifeline to Yahoo with the advertising partnership, Mountain View, Calif.-based Google stepped up scrutiny of its own growing dominance in online advertising, said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co.

“It puts Google firmly on the radar screen of regulators,” he said.

The two companies announced the deal in June after merger talks between Microsoft and Yahoo collapsed. Google and Yahoo said they would postpone working together until October so antitrust officials could scrutinize the partnership.

The companies had hoped to avoid a European review by limiting the ad deal they announced in June to the United States and Canada, where antitrust regulators are less aggressive.

But since the two companies do business in Europe, the cooperation could violate European Commission rules on anti-competitive practices, such as price-fixing and sharing of sensitive business information, said Jonathan Todd, a spokesman for the EU’s competition commission.

He said the review, which began quietly in July, would focus on the possible effects of the deal on European Commission rules relating to “restrictive business practices.”

If the commission escalates the inquiry to a formal investigation, it could pose major problems for Google and Yahoo. European regulators have been more aggressive than U.S. officials about enforcing antitrust regulations in recent years.

Google spokesman Adam Kovacevich said the company was cooperating with European regulators.

Microsoft argues that the deal would give Google too much control over the online advertising market.

Bernstein’s Lindsay said Yahoo and Google were too optimistic that the ad deal would get regulatory approval. Given recent developments, he said he now expects, at a minimum, a “significant delay.”