Signed in June, the deal would let Yahoo run Google search ads and split the revenue. The companies voluntarily delayed implementing the agreement until early October to give the DOJ a chance to review the deal's antitrust implications.
However, as October draws to a close, the DOJ has yet to sign off on the deal, which represents a much needed annual revenue opportunity of about US$800 million for Yahoo.
In its first 12 months after implementation, the deal could give Yahoo between $250 million and $450 million in incremental operating cash flow, the company has said.
A collapse of the deal would hurt Yahoo more, considering it is struggling financially and its stock price is hovering between $12 and $13 per share.
If the deal is scrapped, it would fan the flames of criticism that have been roasting Yahoo's executives ever since they got blamed by many stockholders for derailing Microsoft's acquisition attempt.
Right before walking away from the negotiating table in early May after a tumultuous three-month bid, Microsoft offered to buy all of Yahoo for $33 per share.
At the time, Microsoft CEO Steve Ballmer said that the possibility that Yahoo might enter into a search ad deal with Google had played a big part in Microsoft's decision to drop its bid.
Later, Microsoft came back and tried to buy Yahoo's search advertising business, but Yahoo instead opted for the more limited Google deal.
Now it looks like Yahoo might end up with its hands empty -- no deals with either Google or Microsoft, and a precarious financial situation that has led to two rounds of layoffs this year, a voluntary exodus of many high-ranking business and technology leaders and much distress among shareholders.
Recently, there have been rumors that Yahoo and AOL are in talks to merge, but there is skepticism over how beneficial that deal would be in the long run.
Although fusing the companies would give Yahoo an instant revenue and market share boost, it's not clear how bringing together two struggling Internet companies would solve their respective problems.
According to the Journal, Google and Yahoo met on Thursday with the DOJ, which apparently wants the companies to sign a consent decree outlining the deal's terms and subjecting their compliance to a judge's oversight.
This condition is particularly unappealing to Google, and might lead both companies to cancel the deal as early as next week, reported the Journal, citing anonymous sources.
A variety of ad industry groups and search market competitors have voiced objections to the deal, saying it would strengthen Google's already dominant position in search advertising.