• The Financial Times , Monday, November 3, 2008 12 PM

The Financial Times' Richard Waters says the chances of a Google-Yahoo search partnership are looking "increasingly slim" as the companies fail to convince the U.S. Department of Justice that the move would not prove to be anticompetitive. Google and Yahoo agreed on the alliance in June as part of Yahoo's defense of an unsolicited takeover by Microsoft, but industry associations and advertisers alike have vociferously opposed the move. The companies have not yet implemented the partnership in order to give antitrust regulators time to review it. That deadline has been extended twice since, with the second set to expire later this week.

Should the move fall through, analysts said Yahoo would be forced to pursue other options. According to Youssef Squali, an analyst at Jefferies in New York, a Microsoft search deal would be the best. Citigroup analyst Mark Maheny, meanwhile, said that a Google-Yahoo failure would put more pressure on Yahoo to complete an acquisition of Time Warner's AOL.

Even so, neither Google nor Yahoo was ready to concede that their search partnership has been defeated; both claimed that talks with the DOJ were set to continue. Under the deal, Yahoo would display some advertisements supplied by Google on its search results, making the companies' combined market share upwards of 80%. The DOJ's lawyers, meanwhile, haven't indicated whether they intend to sue, block or impose further limits on the proposed partnership, although insiders claim that the first two options seem the more likely.

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