Microsoft's Yahoo strategy: Betting on Yang

As Yahoo continues to hammer out plans for a corporate reorganization, Steve Ballmer is still eying a possible search deal.

While Microsoft has "no interest" in buying all of Yahoo, top management is still contemplating whether to go back to Yahoo with a sweetened search deal, according to a person familiar with the company's thinking.

Ballmer: Will he or won't he?

(Credit: Dan Farber/CNET News.com)

Earlier this week, CNET News.com reported that several Yahoo board members remain open to discussing a possible sale of the company's search business to Microsoft.

The thinking inside the company is that the search agreement between Yahoo and Google will encounter antitrust objections. Under terms of the pact announced earlier this month, Google will supply Yahoo with some search ads. The sides have voluntarily held off putting the agreement into effect to let the Justice Department review the deal. (Wednesday afternoon, Yahoo CEO Jerry Yang sent a letter to shareholders defending the arrangement.)

If Microsoft's management does give the green light to its negotiators, the feeling is that it would be easier to pursue a sweetened Yahoo deal with the current board and while Yang remains CEO. Yang has been under increasing pressure from disgruntled shareholders since the collapse of the Microsoft talks and the drop in Yahoo's share price.

Meanwhile, a source close to Yahoo said the company's main objections to the Microsoft proposal are its exclusivity and term. The source indicated that Yahoo remains open to discussing a search deal despite its letter and its deal with Google.

A shareholders meeting is slated for August 1. Billionaire investor Carl Icahn is waging a proxy battle to replace the board with his own slate.

It is not known whether Microsoft representatives have contacted their opposite numbers at Yahoo to reopen talks about a possible deal.

TechCrunch had floated a (still unconfirmed) rumor that the sides were again talking about "a full buyout." Several sources told CNET News.com that a full buyout was not on the table.

Meanwhile, Yahoo President Sue Decker is reported to be working out details of a management reorganization. At this point, the situation remains fluid, as conversations continue with prospective departmental heads. The idea is to come up with a management structure that would foster faster product development and distribution as well as reduce corporate red tape.

CNET News.com's Ina Fried contributed to this report.