Mumbai: Software giant Microsoft Corporation, which had walked away from its $33-per share bid of Internet giant Yahoo! earlier this month (See: Microsoft withdraws from Yahoo!; shareholders restive with Yang), has returned to the table with an alliance rather than a complete takeover, saying that there is a renewed possibility the two companies reaching an agreement to challenge Internet's leading online search and advertising provider Google Inc.

In a statement, Microsoft said ''In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. 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!

The software giant also said, Microsoft was 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. "There of course can be no assurance that any transaction will result from these discussions.''

The proposed deal with Yahoo! is just a shade under an acquisition, though Microsoft has reserved its right to reconsider its position about the acquisition of the Internet company.

In response to Microsoft's statement, Yahoo! said that it is open to pursuing "any transaction" in the "best interest of its investors".

Microsoft's talks give Yahoo! a chance to forge an agreement with Microsoft at a time when activist investor Carl Icahn has threatened to oust the entire Yahoo! board in order to attempt to restart negotiations with Microsoft. (See: Icahn seeks FTC clearance to acquire $2.5 billion worth Yahoo! stock; threatens proxy fight)

Observors say Microsoft's alternative deal to Yahoo Inc rather than a full acquisition was unlikely to appease Icahn, who insists that if Microsoft and Yahoo! were to combine forces, they could create ''a force strong enough'' to combat Google's dominance of the Internet.

Global internet advertising predicted to top $40 billion this year, and double to $80 billion within three years.

Microsoft has acknowledged that it is nowhere in the internet search business that it would like to be and has repeatedly souhght an aliancw with Yahoo to stall rival Google's advances that have given it a dominant share from online advertising, that analysts believe would be next growing source of revenue generation.

Microsoft had first discussed the possibility of a business alliance with Yahoo in late 2006, and, according to reports, it offered to buy Yahoo for about $40 per share, in an unpublicised offer, in early 2007.

"Looking at Microsoft's traditional revenue streams of Windows and Office, one can see how the acquisition might bolster Microsoft's Office Live strategy by driving traffic toward its online services, " says Butler Group information management practice director Richard Edwards. "Although rankings vary from country to country, the Yahoo web site has consistently been the number-one destination on the web according to Alexa, with MSN dipping to fifth spot as Microsoft redirects traffic to live.com." (See: Microsoft's Yahoo gambit: For a fistful of dollars) 

A statement from Yahoo! said it had ''confirmed with Microsoft that it was not interested in pursuing an acquisition of all of the company'', but was open to "pursuing any transaction which is in the best interest of our stockholders," and that the company would be willing to evaluate alternative transactions, including "any Microsoft proposal."
The board "will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value," it said.

Yahoo! has repeatedly declined to be acquired by Microsoft at a value of $33 a share, which it said undervalued the company and asked for astleat $37 petr share (See: Microsoft withdraws from Yahoo!; shareholders restive with Yang)