Here We Go Again: Microsoft, Yahoo! in New Talks

Microsoft has proposed a new collaborative advertising deal with erstwhile merger partner Yahoo!. Though the new deal does not involve Microsoft buying Yahoo! outright, Microsoft has done another about-face and left that possibility open again as well.

"Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!," a statement issued by Microsoft on Sunday reads. "Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties."

According to sources close to the company, what Microsoft has proposed is combining the two company's online advertising efforts so that they can together compete against market leader Google. Yahoo!, of course, has been in talks recently to outsource part of its Web search technologies to Google, a move many have seen as business suicide. Presumably the new Microsoft deal is a bid by the software giant to prevent any Google/Yahoo! matchup.

Yahoo!, too, has seen its largest shareholders rebel against the company in the wake of its successful bid to stave of Microsoft's purchase. Billionaire investor Carl Icahn recently announced his intention to mount a proxy battle to replace Yahoo!'s board with one that would be more willing to deal with Microsoft. Icahn, however, has never formally talked with Microsoft about his plans.

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