Microsoft: New talks for alternative Yahoo deal

While Google's help probably would provide Yahoo with a short-term lift, it might hurt Yahoo in the long run by making Google even stronger, according to some analysts.

Ballmer already has said Microsoft will be less interested in Yahoo if it cedes control of search advertising to Google. Icahn has urged Yahoo's board not to enter into any deals, such as a Google partnership, that might diminish the company's value to Microsoft.

Nevertheless, some analysts believe a formal partnership between Google and Yahoo could happen any day.

The mere acknowledgment that Microsoft and Yahoo are at least talking again will likely cause more investors to conclude it's only a matter of time before the two sides work out an amicable deal.

The theory that Microsoft would eventually renew its takeover attempt helped cushion the blow to Yahoo's stock since Ballmer withdrew an oral offer of $47.5 billion, or $33 per share, after Yang held out for $53 billion, or $37 per share.

Yahoo shares ended last week at $27.66, down by just $1, or 3 percent, since Ballmer walked away from the discussions. They were trading at $19.18 when Microsoft announced its initial bid of $31 per share Feb. 1.

Despite the intensifying pressure from Icahn and some of Yahoo's major shareholders, Yang and Yahoo Chairman Roy Bostock reiterated last week that they won't sell the company for less than the board believes it's worth.

While Yahoo's board has set a $37-per-share target, many analysts believe Microsoft could probably seal a deal by offering $34 or $35 per share.

Most analysts believe Microsoft needs to make a dramatic move, such as buying Yahoo, to slow Google's rapid rise as the Internet reshapes the way people interact with computers. The shift is weakening Microsoft's core franchise of providing software tethered to the individual hard drives of personal computers.

"We continue to maintain our view that there is no other company that needs Yahoo as much as Microsoft and Microsoft does not have compelling plan-B without Yahoo," Collins Stewart analyst Sandeep Aggarwal wrote in a research note last week.