• Reuters, Thursday, May 29, 2008 11:01 AM

Yahoo CEO Jerry Yang on Wednesday admitted that Microsoft is no longer interested in a potential merger, but the two sides are still talking about a potential tie-up. "Microsoft is no longer interested in buying the company, and we are talking about other things," said Yang, speaking at The Wall Street Journal's D Conference in Calif. "We definitely have to understand what they're proposing...they clearly have an interest in Yahoo, and we need to understand more."

Since mid-May, the companies have been discussing a possible tie-up involving Yahoo's search business, which was one of the driving forces behind Microsoft's interest in the Web giant. Discussing the breakdown in merger talks, which began four months ago, Yang insisted, "We did not walk away from that proposal. Microsoft did," adding that the combination would have had a "tremendous amount of power." Others might say that Yahoo's unwillingness to consider any price below $37 per share (Microsoft offered $33) ultimately caused the software giant to walk away from that deal.

Yahoo is now trading at $27, and the best that many believe it can hope for is either a search tie-up with Google or the sale of its search business and a minority stake to Microsoft. As part of the latter deal, Yahoo would sell off its Asian assets, which include significant stakes in China's Alibaba Group and Yahoo Japan.

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