It’s official, Google has pulled the plug on its planned search advertising partnership with Yahoo after facing the threat of an antitrust lawsuit by federal regulators. The decision, while a blow for both companies, is particularly painful to Yahoo, whose stock has plunged since Microsoft withdrew its buyout offer and currently has a $400 million cost-cutting plan under way that includes cutting at least 10 percent of its global staff before the year ends.

When the companies announced the deal back in June, Yahoo said it could generate up to $800 million in incremental operating cash flow in the first 12 months of operation. Under the partnership, Yahoo would have placed Google ads on some of its search results and the companies would have shared the resulting revenue.

Google's decision to drop the deal comes as a bit of a surprise, given earlier statements made by CEO Eric Schmidt that the company would move forward with the partnership in October, with or without approval from the Justice Department. The search giant has changed its tune, however, and now says that “pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners.”