Microsoft and Yahoo! 'discuss new deal'

Microsoft is mulling over a new deal with Yahoo! that would not involve a full buyout of the company.

A fortnight ago the web pioneers pulled out of a £25 billion deal to buy Yahoo! outright.

A source said the two could form a joint venture to take on search engine market leader Google.

But it is thought the software giant's move is likely to prompt billionaire investor Carl Icahn to press Yahoo! to further pursue a possible alliance with Google, the source said.

"Microsoft is trying to get the milk without buying the cow, and if you look at Icahn's history, he has never been used that way," the source said.

"He does not want to see Yahoo! pushed into some joint venture with Microsoft and is not going to be used to push Yahoo! into it."

Microsoft's statement said it was "considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo!". It did not clarify what that alternative might be.

The New York Times reported that Microsoft and Yahoo! may form a partnership or joint venture for search-related advertising to take on Google, which dominates the search market with a share significantly larger than a combined Yahoo! and Microsoft.

Yahoo! is continuing to hold talks with Google about a search advertising partnership and a deal could come as early as this week, according to reports.

© Independent Television News Limited 2008. All rights reserved.