All Things Digital

[UPDATED: Now includes links to The Wall Street Journal's report, a statement by Yahoo and it makes clearer that purchase option is one of many being considered.]

Will Microsoft now just buy Yahoo’s search business instead of the whole company?

Ah, what are weekends for?

Why for announcing another non-deal deal–this time, sources said, it is related to search–in the Microsoft-Yahoo takeover pas de deux, of course!

Well, actually, pas de trois now that billionaire investor Carl Icahn entered the picture last week, with his own bid to grab control of Yahoo.

But this weekend, it seems that it is just Microsoft (MSFT) and Yahoo (YHOO) tangoing– doubtlessly spurred by pressure from Icahn.

Today, Microsoft released a statement that it was “considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo.”

The software giant would not give details, but sources at both companies speculated to BoomTown that it involved Microsoft buying Yahoo’s search business and the ad business related to text-based ads, or doing another kind of transaction that would bring the companies closer together to fight Google (GOOG).

The Wall Street Journal reported today that Microsoft was making the move to thwart a potential Google search-ad deal with Yahoo.

Wrote The Journal:

“According to people familiar with the matter, Microsoft has proposed to Yahoo a deal related to advertisements that run next to Internet search results, a large business that is dominated by Google Inc. The move by Microsoft appears to be an attempt to stop Google from entering a search-related deal with Yahoo that’s now under discussion and could be announced in coming days.”

Microsoft said in its statement that it was “not proposing to make a new bid to acquire all of Yahoo.”

But, it added, it “reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties.”

Say what, Willis?

To add to the confusion, Yahoo also released a statement about the Microsoft statement (here it is in its entirety):

“Yahoo has confirmed with Microsoft that it is not interested in pursuing an acquisition of all of Yahoo at this time. Yahoo and its Board of Directors continue to consider a number of value-maximizing strategic alternatives for Yahoo, and we remain open to pursuing any transaction which is in the best interest of our stockholders. Yahoo’s Board of Directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value.”

That statement is also opaque, but seems to say that the game is still on.

Indeed, given that Microsoft, in its long-running war with archrival Google, it wants most of all to grab Yahoo’s search ad business to become a credible No. 2 in the important sector. It could do this via a purchase of those assets or, said others, formulate a deal to be Yahoo’s exclusive search partner.

But, as many reports about the company in the past have noted, Yahoo execs have been reluctant to give up control of its search business to anyone else.

Yahoo would would like to keep its online display ad business, its communications assets, including mail and instant messaging, as well as its many content properties.

These are all areas where Yahoo actually excels and should have been focusing on in the first place, instead of competing with Google in search.

Interestingly, sources said, when Microsoft was considering involving News Corp. (NWS) in its unsolicited bid to buy Yahoo, a proposal was being considered that Microsoft own the search and search ad business, while spinning off all content and communications assets into a separate company that would also include News Corp.’s MySpace. (News Corp. owns Dow Jones, which owns this site.)

“We are not as strong in content as we are in technology,” a Microsoft source told me at the time, in a bit of an understatement.

In any case, here is the whole statement from Microsoft:

“In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo. Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties. There of course can be no assurance that any transaction will result from these discussions.”

Please see this disclosure related to me and Google.