Regulators would watch any Google-Yahoo tie-up

By Diane Bartz and Eric Auchard

WASHINGTON/SAN FRANCISCO (Reuters) - Google Inc (GOOG.O) might be able to stymie Microsoft Corp's (MSFT.O) offer to buy Yahoo Inc (YHOO.O) by forging a deal to run Yahoo's Web search operations or buy a minority stake -- but even that risks the ire of antitrust regulators.

Microsoft on Friday offered to pay $44.6 billion for Yahoo, an ailing Web star that has been under pressure from Wall Street to either cut jobs or make more money on advertising. To fend off Microsoft's overture, a Yahoo source said on Sunday the search company would consider a business alliance with Google.

Google, which has 58.4 percent of the U.S. Web search market, would probably be prevented by U.S. antitrust enforcers from buying Yahoo, with 22.9 percent of the search market, according to ComScore, antitrust experts said.

"The probability that (a Google/Yahoo deal) would pass antitrust muster is a lot lower than the Yahoo-Microsoft deal would pass muster," said Luke Froeb, a former director of the U.S. Federal Trade Commission's Bureau of Economics.

Aaron Edlin, who teaches law and economics at the University of California in Berkeley, said Google could help Yahoo stay out of Microsoft's grip with a carefully targeted buy like "an investment in stock, 10 or 20 percent, a non-controlling interest."

Google and Microsoft are bitter rivals. Microsoft staunchly opposed Google's offer to buy advertising company DoubleClick for $3.1 billion last year. U.S. antitrust regulators approved the deal in December.

One alternative that Yahoo and Google appear ready to consider is to revive an old arrangement where Yahoo relied on Google to power Web searches on its site. Yahoo was Google's highest profile customer from 1999 to early 2004.

Regulators would still have the option to stop such a partnership, but it could prove lucrative to Yahoo. Google has a three-year, $900 million deal to run searches for MySpace, the world's largest social network site.