Analysts: Microsoft-Yahoo deal will pass antitrust muster

Regulators likely to approve a merger, say experts

Microsoft is an odds-on favorite to pass regulatory muster over its proposed acquisition of Yahoo, according to analysts.

"Here, we're talking about a No. 2 and a No. 3 combining, so it's hard to see where a monopoly argument would be able to take root," said Andrew Frank, an analyst at Gartner.

"I wouldn't say it's going to be easy," said Allan Krans, an analyst at Technology Business Review, "because it would create a duopoly. Together, Google and a Microsoft-Yahoo would control 80% to 90% of the search market, so regulators will weigh whether the combination better serves competition and consumers in the marketplace, or whether [Microsoft and Yahoo] should remain separate.

"But I think in the end it will be approved," Krans concluded.

According to Hitwise, a Web measurement company, the three companies -- Google, Yahoo and Microsoft -- accounted for 93.8 per cent of all search volume in the US alone during January 2008.

Microsoft would need approval from the Federal Trade Commission (FTC) in the US, and the Competition Commission in the European Union, among others. And while US regulators are typically considered easier to convince, those in the EU have been more aggressive in staking out antitrust positions. "Antitrust laws are a concern with any deal of this size," said Frank. "While the current US administration is less likely to pose a problem, in recent years the European Union has been aggressively policing similar mergers."

The proposed acquisition of DoubleClick, an ad management company, by Google, for example, has been approved by the FTC but the EU has rebuffed it.

In the EU, in fact, the trend toward blending privacy issues with potential monopoly problems has been strongest, said Frank. "My guess is that the EU may have more questions about privacy than about antitrust, since that seems to be one of the things that they focused on in the Google-DoubleClick deal," he added.

"It's actually interesting that privacy and antitrust have mingled," said Frank. "It's a relatively recent development."

For its part, Microsoft was confident that the proposal would be approved by antitrust regulators. Although the issue wasn't directly addressed during a conference call with reporters and financial analysts earlier this morning, in a statement the company said: "Microsoft believes this proposed combination would receive all necessary regulatory approvals, and expects that the proposed transaction would be completed in the second half of calendar year 2008."

But is that realistic?

"The EU typically takes longer to look at these kinds of things," said TBR's Krans. "But I think there's sufficient time to pass through all these hurdles. A year should be enough."

Gartner's Frank seemed to agree. "There are few people with more experience in antitrust issues and process than Microsoft," he said. "I think the homework they've done on the process is probably pretty extensive."

EU spokesman Jonathan Todd declined to comment on the chances that the Competition Commission, the multinational group's antitrust agency, would give its approval. "We never comment, on or off the record, on any deal that has not been notified to the commission," said Todd. "The responsibility for checking whether a particular deal has been notified to the European Commission under the Merger Regulation lies with the bidding company, not the commission."

Krans said he believes that even the EU, which has levied record fines against Microsoft for breaking EU antitrust laws -- and recently announced it is launching two new investigations of the company's business practices -- would pass the deal. "A duopoly is better than a monopoly," said Krans, "and that's what may happen if Google controls the [online ad and search] markets."

But in the end, getting regulatory approval for the merger may be among the least of Microsoft's problems, said Frank. "There are any number of challenges that have the potential to derail this," he said. "One thing that no one has addressed is who will be the leader of this combined entity.

"There's a real need for a forward-looking leader for this," he said.

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