'Google may scrap Yahoo deal if US sues'

Google Inc, owner of the most popular web-search engine, may back out of a partnership with rival Yahoo Inc if the US justice department sues to block it, Stifel Nicolaus & Co's Blair Levin said. A suit would give antitrust officials access to most of the businesses' records, which companies typically want to avoid, the analyst said on Friday. The department hired Sanford Litvack, its chief under president Jimmy Carter, to give advice, signalling the agency may plan to challenge the deal. "Generally speaking, the government wins these things," said Levin, who once served as the federal communications commission's chief of staff. "When the justice department walks into court to block something, when the antitrust division comes in, they have a lot of history on their side." Lawmakers have questioned whether the deal, which will let Yahoo display Google ads next to some of its search results, will give the companies too much control over the internet. The two already handle more than 80% of web searches in the US. Google, based in Mountain View, California, rose $19.59, or 4.7%, to $433.75 in Nasdaq Stock Market trading at 4 pm New York time. The stock has dropped 37% this year. Yahoo rose 85 cents, or 4.8%, to $18.55. Litvack is an outsider and a "recognized all-star," and his appointment may signal the agency plans to block the deal, said Levin, who is based in Washington. The justice department is still examining the deal, said spokeswoman Gina Talamona, who declined to comment further. The department hasn't confirmed Litvack's appointment. Yahoo confirmed this week that the lawyer had been hired. Microsoft Corp and the 400-member Association of National Advertisers trade group have said a deal between the No 1 and No 2 online advertisers may hamper competition and drive up prices for marketing. Microsoft is a distant third in internet searches, handling about 9% in the US. Google and Yahoo agreed on deal in June, and said at time they wouldn't implement it for 3 and half months to give the justice department time for review. Google chief executive officer Eric Schmidt had said the partnership would probably start in late September or early October. "We're committed to move ahead," Yahoo executive vice president Hilary Schneider said. "We're confident we can get them comfortable in the time period we've talked about." The two companies have maintained that they don't need approval from the justice department to proceed with the deal.

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