Microsoft-Yahoo talks driven by specter of Icahn, Google

For now, Microsoft and Yahoo are still dancing around the edges as they explore possible business arrangements without melding the two companies.

Microsoft has proposed slicing up Yahoo in a deal that's unlikely to win over Yahoo, The Wall Street Journal reported Monday.

Under the proposed break up, Microsoft would buying Yahoo's search division and Yahoo would sell its Internet operations outside the United States, according to the Journal's story, which cited unnamed people familiar with the matter. Microsoft would then buy a minority stake in what was left of Yahoo, the people said.

The notion of a half-baked deal didn't seem to excite investors Monday as they got their first chance to react to Sunday's news that Microsoft and Yahoo are talking again.

Yahoo shares rose a scant 0.7 percent, or 2 cents, to close at $27.68 Monday, while Microsoft shares fell 1.8 percent, or 53 cents, to close at $29.46.

But most analysts remain convinced the preliminary talks will culminate in Microsoft buying Yahoo for somewhere between $33 and $37 per share, a price that translates to $47.5 billion to $53 billion.

Both Microsoft and Yahoo issued statements Sunday acknowledging they haven't ruled out the possibility of a merger even though they aren't discussing one now.

Although their discussions fell apart this month in a disagreement over price, both Yahoo and Microsoft have powerful incentives to reach a compromise within the next few weeks.

If Yahoo doesn't stop demanding $37 per share, its board could be overthrown in a shareholder mutiny led by activist investor Carl Icahn.