Google’s $700 Million ITA Deal Cleared by Justice Department

Google Inc. (GOOG) won U.S. Justice Department approval for its $700 million purchase of ITA Software Inc. on the condition it makes travel data available to search-engine rivals and lets the government review any complaints it’s acting unfairly.

Google agreed to license ITA’s travel information software to third parties, put up firewalls protecting client data and set up an arbitration process for disputes over fees. The Justice Department reached the consent decree after an eight- month review.

“The proposed settlement assures that airfare comparison and booking websites will be able to compete effectively, providing benefits for consumers,” Deputy Assistant Attorney General Joseph Wayland said yesterday in a statement. The proposed settlement must be approved by a federal judge.

The resolution of the matter allows the government to consider a larger investigation of Mountain View, California- based Google, operator of the world’s largest search engine. The Federal Trade Commission, which also oversees U.S. antitrust laws, is exploring a possible probe of Google’s search business, two people familiar with that matter said this week.

‘Moving to Close’

“We’re moving to close this acquisition as soon as possible,” Google said in an online posting. Google said it has formally committed to let ITA’s customers extend their contracts into 2016 and to let both current and new customers license ITA’s QPX software on “fair, reasonable and non-discriminatory terms.”

There are no limits under this agreement as to what the company can do in travel search, Google spokesman Adam Kovacevich added. He said Google agreed to forward any complaints from online travel companies to the U.S. government for two years. The consent decree lasts for five years.

Google is required to report to the Justice Department any complaints it receives from companies that are directly or indirectly related to the proposed settlement, a department official said. This stipulation is in addition to the reporting requirements commonly found in such agreements, the official said. The company also will have to set up a website that shows the consent decree, said the official, who declined to be identified because he wasn’t authorized to speak publicly.

Band Together

Microsoft Corp. (MSFT), Kayak.com , Expedia Inc. (EXPE) and other Google competitors banded together as FairSearch.org to oppose the acquisition of Cambridge, Massachusetts-based ITA, which makes software that provides data for online travel sites such as Orbitz Worldwide Inc. (OWW) They said the deal would reduce competition and called on the Justice Department to impose conditions for the transaction.

“By putting in place strong, ongoing oversight and enforcement tools, the department has ensured that consumers will continue to benefit from vibrant competition and innovation in travel search,” FairSearch.org said in an e-mailed statement.

Google fell $1.84 to $578.16 in Nasdaq Stock Market trading yesterday. The shares have dropped 2.7 percent this year. Expedia rose $2.90, or 13 percent, to $25.30 while Microsoft fell 13 cents to $26.07.

The Justice Department and FTC may vie for control of any broader investigation of Google, the people familiar with the matter said before the consent decree was announced. When both agencies have expertise in an industry they want to probe, they must negotiate which one will handle major antitrust investigations under a formal clearance agreement.

‘Clears an Acquisition’

“The consent decree clears an acquisition, but it does not offer Google relief from concerns that it may be using its market power to restrict competition,” D. Jarrett Arp, an antitrust lawyer at Gibson, Dunn & Crutcher LLP in Washington, said in an e-mail. “The consent decree suggests that antitrust oversight of Google is increasing.”

Google’s settlement shows it can still make acquisitions of $500 million or more in the face of rising regulatory scrutiny, said Ross Sandler, an analyst with RBC Capital Markets. Sandler, who doesn’t own Google shares, rates them “outperform.”

“They’re making concessions because the deal is not going to get done otherwise,” Sandler said. “If they can’t buy anything except for little 20-person start-ups, that becomes a growth issue at some point.”

‘Remains Concerned’

Tom Barnett, outside counsel to Expedia, a FairSearch member, said on a conference call that the consent decree “is a signal that the department remains concerned about Google’s general power on the Internet and its ability to expand that power.”

Bert Foer, president of the Washington-based American Antitrust Institute, opposed the merger because he said Google’s rapid growth was turning it into a “monopoly” that couldn’t be regulated. He said the company shouldn’t be allowed to expand through acquisitions.

The European Commission and Texas Attorney General Greg Abbott have begun investigations into whether Google is skewing its search results to favor its own businesses over competitors’ websites.

The European Union’s antitrust commissioner, Joaquin Almunia, said yesterday that he expects more complaints about Google given its “extremely large” market share for Web search and advertising. Google has almost 95 percent of the market in Europe, Microsoft said in a blog posting last week, citing data from regulators.

Senate Panel

U.S. Senator Herb Kohl, the Wisconsin Democrat who heads a Judiciary antitrust subcommittee, has said he will examine Google’s business practices. Senator Mike Lee of Utah, the panel’s senior Republican, has called for hearings.

Google, which had 65 percent of the U.S. search market in February, according to ComScore Inc., is buying companies to boost its online services, spending about $1.8 billion on more than 45 acquisitions last year, according to regulatory filings.

Before the ITA deal, which was announced in July, Google bought mobile ad service AdMob Inc. in May for about $700 million and online advertising provider DoubleClick Inc. in 2008 for $3.2 billion. Both were cleared without restrictions by the FTC.

In November 2008, the Justice Department threatened to sue over a planned alliance with Yahoo! Inc., leading Google to scrap an agreement to place ads with the Sunnyvale, California- based Web portal.

Google had pressed the Justice Department to decide whether it would challenge the ITA deal in December, prompting government lawyers to prepare a lawsuit to block it, people familiar with the situation said at the time.

Pattern of Conditions

The Justice Department is developing a pattern of approving deals with conditions to remedy possible anticompetitive concerns.

The U.S. reached a consent decree for Comcast Corp.’s acquisition of NBC Universal in January and approved Ticketmaster Entertainment Inc.’s merger with Live Nation Inc. in January 2010.

The Comcast agreement, announced Jan. 18, included safeguards so the largest U.S. cable company couldn’t restrict online video content. The Live Nation merger called for Ticketmaster to license its software to AEG Live, its largest customer, and sell its Paciolan unit to a Comcast joint venture or another suitable buyer.

Yesterday’s consent decree will let Google “go from potential antagonism to collaboration” with U.S. regulators, said Scott Kessler, an analyst with Standard & Poor’s in New York who rates the shares a “strong buy” and doesn’t own the stock. “They perhaps look at this as a preemptive step.”

---With assistance from Brian Womack in San Francisco. Editors: Jim Rubin, David E. Rovella.

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net; Jeff Bliss in Washington at jbliss@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Mark Silva at msilva34@bloomberg.net.

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