• by Wendy Davis , Staff Writer @wendyndavis, April 24, 2008

Hedging its bets, Microsoft is publicly talking about walking away from a Yahoo merger, but also has drawn up a slate of 13 candidates for Yahoo's board of directors, according to The Wall Street Journal.

The list of 10 candidates and three alternates includes ex-Nextel CEO John Chapple, former Grey Global CEO Edward Meyer, ex-Overture COO Jaynie Studenmund, and former Adelphia CFO Vanessa Wittman, the Journal reports.

Yahoo still faces a Saturday deadline to decide whether to accept Microsoft's $31 a share offer. Microsoft chief Steve Ballmer has indicated that after that date, the company could do anything from lowering its bid to attempting to wrest control of the board.

Meanwhile, Yahoo's two-week search outsourcing test with Google has drawn antitrust scrutiny by the U.S. Department of Justice.

Under the deal, expected to end this week, Google is powering approximately 3% of the paid search results on Yahoo. Combined, Google and Yahoo account for at least 80% of the search market, which has led some commentators to say that a deal between the two would trigger antitrust concerns.

It's far from clear, however, that those concerns would be enough to scuttle an agreement between the companies. As a preliminary matter, the authorities would have to decide that search is its own marketplace -- distinct from either the larger online ad marketplace or even bigger overall ad industry.

And then, even if search is viewed as its own market, there's no guarantee that courts would determine that a Google-Yahoo alliance is anti-competitive. The entire antitrust issue puts Microsoft in an awkward position given its own anti-competitive history.

"It's easy to see how there would be antitrust questions about something like that," Gary Reback, an antitrust attorney who pushed the government to sue Microsoft in the '90s, told the Los Angeles Times. "On the other hand, are those bigger than having Microsoft acquire Yahoo?"

If nothing else, Microsoft would certainly face a difficult public relations battle if it decides to argue that a Yahoo-Google deal harms competition, but a Microsoft-Yahoo deal is good for the market.