A friendly Justice Department review of the Google-Yahoo search deal has been upgraded to a formal investigation, the Washington Post says. We doubt this will result in Justice actually blocking the deal (because we just don’t see any real anti-trust reasons for this), but the investigation suggests the approval process will take more than the planned couple of months. This news is therefore negative for Yahoo and positive for Microsoft. It’s also slightly negative for Google (the deal’s a rounding error).
The Post cites lawyers who says Justice doesn’t pursue formal investigations unless they have serious questions about a deal:
Lawyers familiar with similar investigations said that the kind of legal requests being issued by the Justice Department in this case — “civil investigative demands” — are not used for routine matters.
“They don’t do it without having identified significant issues,” said M.J. Moltenbrey, a Freshfields Bruckhaus Deringer lawyer who was director of civil non-merger enforcement in the Justice Department’s antitrust division in the 1990s. “It involves approval at higher levels within the antitrust division.”
“It doesn’t mean they have drawn any conclusions,” said Peter Guryan, a partner with Fried Frank and formerly an antitrust lawyer in the Justice Department. But “it is a significant step beyond a request for voluntary information,” he said. “It demonstrates that the DOJ clearly has questions.”
As with Google’s acquisition of DoubleClick, Microsoft’s opposition to the Google-Yahoo deal will mean a steady stream of funding for lobbying and PR efforts designed to inflame concerns. At the very least, this will prompt regulators to dot their i’s and cross their t’s to avoid appearing hasty. We suspect that is at least one motivation for the Justice Department investigation, but it is also possible that the Department does, in fact, have serious questions about the legality of the deal.
Any doubt about the Google-Yahoo search deal being approved, of course, would have ramifications for Yahoo’s stock (negative) as well as its willingness to perhaps consider a sweetened search deal from Microsoft (positive).