GOOGLE AND Yahoo’s proposed advertising partnership was dealt another blow this week when the European Union confirmed it was reviewing the deal for anti-trust implications, adding to recent public criticism from major US advertisers and a worldwide association of newspapers.

The US justice department is considering a formal challenge to the partnership, through which Google would broker some text advertisements for Yahoo’s search engine. Google chief executive Eric Schmidt this week told reporters he planned to move ahead with Yahoo in implementing its advertising search deal and believed that rival Microsoft was behind plans to derail it.

Yahoo has the most to lose financially if the deal is delayed or scuttled. The troubled internet company struck the deal as an alternative to Microsoft’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 might also open up some potholes for Google.

By extending a lifeline to Yahoo with the advertising partnership, Google stepped up scrutiny of its own growing dominance in online advertising, said Jeffrey Lindsay, analyst with Sanford C Bernstein.

Yahoo stock 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 could plummet further, as investors are counting on the $250 million (€173 million) to $450 million that Yahoo said the deal would generate in the first year. The two companies had hoped to avoid a European review by limiting the advertising deal they announced in June to the US and Canada.

But since the two companies do business in Europe, the co-operation could violate European Commission rules on anti-competitive practices, such as pricefixing and sharing sensitive business data. – (Reuters, Los Angeles Times service)