WASHINGTON — Roadblocks are mounting on a vital route for Yahoo Inc.'s revival: the company's advertising partnership with once-rival Google Inc.
The European Union said Monday that it was reviewing the deal for antitrust implications there, adding to recent public criticism from major U.S. advertisers and a worldwide association of newspapers.
In addition, the U.S. Justice Department is considering a formal challenge to the partnership, through which Google would broker some text ads for Yahoo's search engine. And attorneys general in at least 11 states, including California, are running investigations to determine whether the deal would hurt competition.
Yahoo has the most to lose financially if the deal is delayed or scuttled. The Sunnyvale, Calif., Internet company struck the deal as an alternative to Microsoft Corp.'s hostile takeover bid, saying the Google deal could help Yahoo remain independent while boosting its cash flow.
But the growing opposition to the deal also might be opening up some potholes for Google. By extending a lifeline to Yahoo with the advertising partnership, Mountain View, Calif.-based Google stepped up scrutiny of its own growing dominance in online advertising, said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co.
"It puts Google firmly on the radar screen of regulators," he said.
Yahoo's stock, which closed down 23 cents at $18.85 a share, has lost about a quarter of its value since Microsoft withdrew its acquisition bid in May.
If the advertising deal falls through, Yahoo's stock almost certainly would tumble further because investors are counting on the $250 million to $450 million in increased operating cash flow that Yahoo said the deal would generate in the first year.
"Less cash in Yahoo's pocket means less opportunity to reinvent itself and regain its relevancy," said Colin Gillis, an analyst at Canaccord Adams Inc.
A steep stock drop also would make Yahoo more vulnerable to another takeover attempt by Microsoft or another company.
For its part, Google will earn a commission for every ad it brokers on Yahoo's network of websites. But many analysts say Google also had another motivation for the partnership: helping Yahoo stay out of Microsoft's hands.
The two companies announced the deal in June after merger talks between Microsoft and Yahoo collapsed. Google and Yahoo said they would postpone working together until October so that antitrust officials could scrutinize the partnership.
