Microsoft-Yahoo dance ends … until next tune?

Microsoft is not going to buy Yahoo outright, according to both companies, nor is there likely to be any deal with Microsoft, according to Yahoo. But it remains unclear if this is the end of the dealings between the two.

Microsoft stated in early May that it was no longer interested in buying Yahoo outright at any price – in large part due to Yahoo’s reluctance to be acquired by Microsoft . At the same time, however, Microsoft has been referring obliquely to a counter-proposal.

That counter-offer, according to news reports, is to buy a minority interest in Yahoo, which would include Yahoo’s search business.

Today, Yahoo said, “Discussions with Microsoft regarding a potential transaction – whether for an acquisition of all of Yahoo or a partial acquisition – have concluded.”

That announcement may have been aimed not at Microsoft, but at Yahoo investor Carl Icahn. Icahn is threatening a proxy battle to gain control of Yahoo’s board, with the intention of reviving merger talks with Microsoft. Yahoo’s announcement appears to undercut Icahn’s rationale for even trying.

Microsoft, on the other hand, said its counter-proposal remains on the table, though it still has not officially defined the details of the proposal.

So the next move appears to be Icahn’s. His choice is between dropping his proxy battle and sticking with it to force Yahoo into considering the Microsoft counter-proposal.

The conclusion of discussions between the two companies has a practical ramification. Yahoo is now prepared to pursue its deal with Google, in which Google will deliver ads next to Yahoo search results.

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