BeyondGenius.com

Microsoft Corp., the software maker that said it had moved on after acquisition talks with Yahoo! Inc. failed, revived the possibility that the companies may strike a deal to challenge Google Inc.

Microsoft said yesterday that it is exploring an agreement with Yahoo that stops short of a full acquisition. Redmond, Washington-based Microsoft didn’t elaborate on the proposal and said it “reserves the right” to reconsider its bid to acquire all of Yahoo.

The proposal gives Yahoo, owner of the second-most popular Web search engine, another chance to forge an agreement with Microsoft as investor Carl Icahn threatens to oust the Internet company’s board. Yahoo Chief Executive Officer Jerry Yang demanded a higher price than Microsoft’s $47.5 billion offer, prompting Microsoft CEO Steve Ballmer to abandon talks on May 3.

“The best strategy for Yahoo is to embrace Microsoft,” Troy Mastin, an analyst at William Blair & Co. in Chicago, said in a Bloomberg Television interview last week. He predicts Yahoo shares will perform in line with the market. “If they structure a deal correctly, they might still be able to retain a lot of the control and autonomy that they have today.”

Yahoo said in a statement yesterday that it is open to pursuing any transaction in the best interest of investors. The company said it will continue to consider all of its options, including any proposal from Microsoft.