It seems that the proposed relationship between two of the worlds biggest search engines, Google & Yahoo!, is all over.

Google has pulled out of the deal due to ongoing concerns from the Justice Department on the fairness of the deal and Google’s belief that it was a case not worth fighting.

This is what David Drummond; Google Chief Legal Officer had to say:

…after four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn’t have been in the long-term interests of Google or our users, so we have decided to end the agreement.

Read more from David on the outcome.

Unsurprisingly, Yahoo! is not happy with the news; here is an excerpt from the press release they issued:

…Google has terminated the advertising services agreement the companies announced in June. Yahoo! continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court. Google notified Yahoo! of its refusal to move forward with implementation of the agreement following indication from the Department of Justice that it would seek to block it, despite Yahoo!’s proposed revisions to address the DOJ’s concerns.

So where does this leave Yahoo!, with the chief exec under mounting pressure from shareholders? The major loser from the decision is Yahoo! The deal promised a revenue opportunity that the search engine desperately needed. It was a glimmer of hope for Yahoo!’s shareholders who have been bitterly disappointed over the last few years. In fact, the ink was barely dry on announcements that the deal was off, when Yahoo!’s head Yang rekindles Microsoft acquisition talk with the comment “To this day the best thing for Microsoft to do is buy Yahoo.”

Talking at the Web 2.0 summit, Jerry continued with:

…I don’t think that is a bad idea at all…at the right price, whatever the price is, we are willing to sell the company…We were ready to negotiate, we wanted to negotiate a deal, and we felt that we weren’t that far apart. But at the end of the day, they withdrew and they since have been very clear about not wanting to buy the company.

Well, that was then and this is now. There’s no denying the worlds finances have changed radically from when Microsoft walked away from Yahoo! acquisition talks.

Yahoo! really has its back up against the wall, and with its share price about 25% lower than it was when the offer was made, it could be a good time for Microsoft rekindle discussions.

Neither of the other “major” search engines are making any real inroads into Google’s ascendancy on their own, so combined, they could possibly offer some serious competition.

Right now it seems for Microsoft the price is right – for Yahoo!, they’re desperate to sell!