The advertising and search deal secured on Thursday night between Yahoo! and Google could still be unravelled after the chairman of an anti-cartel Senate committee in Washington pledged to launch an investigation into the transaction.

Herb Kohl, the chairman of the Senate sub-committee on antitrust, competition policy and consumer rights, said: “The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal.”

Mr Kohl’s comments will come as a blow to the internet companies. Yahoo! and Google on Thursday said that they did not perceive their joint venture to require regulatory approval, and they said that they had offered to delay the completion of the deal for three and a half months to allow the Department of Justice to review it.

Shares in Yahoo! sank another 5 per cent to $22.46, well below the $35 a share that Microsoft had valued the stock at only a week ago.

Microsoft said that it had abandoned attempts to bid for the whole of Yahoo! on Monday. It had offered $47.5 billion (£24.1 billion) for the internet search engine in May. It also emerged that Microsoft had been rebuffed last weekend when it offered to pay $35 a share for a 16 per cent stake in Yahoo! and control of the search operations. While Microsoft said that it was open to alternative deals, such an outcome looks unlikely after Yahoo! signed a deal on Thursday to share advertising and internet searches. That deal, which would trigger a $250 million break fee in the event of a change of control of Yahoo! in the next 24 months, is expected to generate $800 million a year in cash for the company.

It is not clear whether Carl Icahn, who holds a stake in Yahoo! worth at least 4.8 per cent, will seek to sue the Yahoo! board for breaching its fiduciary duty to investors. Some analysts have speculated that Mr Icahn, who is planning a boardroom coup at Yahoo! at its annual meeting on August 1, will sue Yahoo! for failing to allow shareholders to vote on any of the three Microsoft deals. He was not available for comment yesterday.

Scott Kessler, equity analyst at Standard and Poor’s, said: “If you are a Yahoo! shareholder, you just have to be scratching your head right now.”

He added that should the backlash become severe enough, he believes Yahoo! may have to consider replacing Jerry Yang, its co-founder, as its chief executive — something Mr Icahn has already promised he will do if he wins control of the board.

Microsoft offered to buy the world’s second biggest search engine in January for $42 billion in cash and shares, representing a 62 per cent premium to the share price, valuing Yahoo! stock at $31 a share. Mr Yang rejected the offer as too low and began talks with News Corporation, owner of The Times, AOL — the internet arm of Time Warner, and made contact with Google, Yahoo!’s bigger rival.

In May, Steve Ballmer, chief executive of Microsoft, raised his offer by $5 billion, valuing each Yahoo! share at $33. Mr Yang refused to consider an offer of less than $38 per share.

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