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Microsoft said yesterday that a deal with Yahoo!, but not a full-blown acquisition, is still very much on the table.

Although it refused to rule out a possible buyout, Microsoft issued a statement saying it was discussing alternative deals with Yahoo!.

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! 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.

Yahoo! is under pressure from Carl Icahn, who is pushing to replace its board of directors in favour of one which supports the takeover. It has a shareholder meeting 3 July. Clearly the pressure is intensifed if Microsoft's deal, or a version of it, is still on the table. Anonymous sources associated with Microsoft said the software giant had not held talks with Icahn.

Yahoo! issued its own statement in response to Microsoft's:

Yahoo! has confirmed with Microsoft that it is not interested in pursuing an acquisition of all of Yahoo! at this time. Yahoo! and its Board of Directors continue to consider a number of value maximizing strategic alternatives for Yahoo!, and we remain open to pursuing any transaction which is in the best interest of our stockholders. Yahoo!'s Board of Directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value.

Yahoo! is already talking to Google about working together in online advertising - discussions which Steve Ballmer, Microsoft's CEO, blamed for ending the original discussions. Another possibility is that the two companies combine their search engine technology and audiences. ®

The smart choice: opportunity from uncertainty

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