Microsoft said Sunday that it has revived discussions with Yahoo, although at this point the talks haven't escalated to another takeover attempt.
The Redmond, Wash.-based software maker didn't provide specifics about the nature of the deal being explored, saying only that it would bolster the companies' position in the online search and advertising markets where they compete with Google.
"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," the statement said.
Microsoft emphasized that it hasn't resurrected a $47.5 billion takeover bid that was withdrawn after Yahoo CEO Jerry Yang, acting on behalf of Yahoo's board, demanded an additional $5.5 billion May 3.
In a statement late Sunday, Yahoo said its board is exploring several "value maximizing" alternatives and "remain open to pursuing any transaction that which is the best interest of our stockholders."
Microsoft left open the possibility that it might dangle another buyout offer, depending on how discussions progress between the two companies and their respective shareholders.
Yahoo is facing intense pressure from shareholders to reopen sales negotiations, with activist investor Carl Icahn threatening to replace the entire board if a deal isn't reached before Yahoo's July 3 annual meeting.
Although Microsoft hasn't been in touch with Icahn, it reached out to Yahoo after the billionaire revealed his plans Thursday, according to two people familiar with the discussions who requested anonymity because they aren't authorized to speak publicly.
Microsoft cautioned that the talks could go nowhere.
The mere acknowledgment that Microsoft and Yahoo are at least talking again will cause more analysts and investors to conclude it's only a matter of time before the two sides work out an amenable deal.
The theory that Microsoft would eventually renew its takeover attempt helped cushion the blow to Yahoo's stock since Ballmer withdrew an oral offer of $47.5 billion, or $33 per share, after Yang held out for $53 billion, or $37 per share, during a May 3 meeting in Seattle.
Yahoo shares ended last week at $27.66, down by just $1, or 3 percent, since Ballmer walked away from the discussions.
Despite the intensifying pressure from Icahn and some of its major shareholders, Yang and Yahoo Chairman Roy Bostock reiterated last week that they won't sell the company for less than the board believes it is worth.
While Yahoo's board has set a $37-per-share target, many analysts believe Microsoft could probably seal a deal by offering $34 or $35 per share.