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Yahoo and Google are close to sealing a search advertising alliance that would leave Microsoft out in the cold as it hunts for a way to boost its own flagging search business, according to a person familiar with the matter.
Separately Yahoo said on Thursday that talks with Microsoft on the latter's bid for the company were now over.
Though no agreement on advertising has yet been struck, Yahoo and Google were closing in on a deal that could be concluded as early as Thursday, according to this person. The on-again, off-again talks between Yahoo and Google have stalled before in recent months, though another person close to the situation also suggested that a formal agreement was very close to being finalised.
An alliance with Google would mark a turning point in the battle over Yahoo that has raged since early this year, when Microsoft first went public with an unsolicited $44.5bn bid for the internet company.
However, it could also face significant anti-trust obstacles, according to legal experts who have followed the talks in recent weeks. It would also be certain to draw the ire of Carl Icahn, the corporate raider who has built a significant stake in Yahoo and pushed in recent weeks for a sale of the company to Microsoft. Mr Icahn has argued that a search alliance with Google would effectively act as a "poison pill" that reduced the value of Yahoo as an acquisition candidate, a view that Steve Ballmer, chief executive officer of Microsoft, has also voiced in the past.
To get around the potential anti-competitive aspects of combining the two leading search engine advertising systems, Google and Yahoo have in recent weeks discussed various ways of working together, such as giving Google only a small portion of Yahoo's search terms to handle, or even allowing outsiders like Microsoft to bid to supply some of Yahoo's search ads.
However, these ideas appeared to have been ruled out as too complex to manage and the two sides have instead been discussing a more straightforward and far-reaching deal that would involve outsourcing all of Yahoo's search advertising to Google, according to the person familiar with the situation.
