Microsoft Reportedly Eyes Yahoo Bust-Up, Acquires Semantic Search Engine Powerset

A day after Yahoo tried to spin investors that Microsoft may not have been "serious" about acquiring the online portal, the software giant reportedly is in talks with potential allies - including two of the world's biggest media companies - to acquire and break Yahoo up into pieces.

"Microsoft has held discussions with Time Warner Inc. and News Corp., among others, say people involved in the talks," reports The Wall Street Journal, which is published by News Corp. "In the past, Microsoft has floated an arrangement under which it would acquire Yahoo's search business and another partner, such as News Corp.'s MySpace or Time Warner's AOL, would combine forces with what remained of Yahoo.

While the discussions were characterized as "preliminary," the report is likely to spark another episode in the biggest deal drama to hit both Wall Street and Silicon Valley this year.

It's a drama that has become an always daily soap opera as the world's biggest technology and media titans joust back and forth for control over media spin and financial market confidence, if not actual assets.

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On Monday, the Yahoo team began briefing key investors on the notion that Microsoft may never have been serious in its initial $47.5 billion offer to acquire Yahoo.

"The record casts doubt on whether Microsoft was ever committed to a whole-company transaction," Yahoo asserted in a filing with the Securities and Exchange Commission.

Yahoo's play to save face following the aborted bid comes as dissident shareholder Carl Icahn is pushing for a new slate of directors to replace Yahoo's board and to oust founder Jerry Yang as CEO, a drama that could unfold during Yahoo's annual shareholder meeting on Aug. 1.

Microsoft, meanwhile, isn't sitting idly by in its plans to bolster its own online ambitions, especially its goal of advancing its position in the lucrative online search advertising marketplace vs. rival Google. On Tuesday, Microsoft announced a deal to acquire Powerset, a San Francisco-based company that has developed a "natural language" method for conducting online searches. Some analysts believe it is a play to develop the kind of so-called "semantic Web" application that many believe will be the next iteration of the Internet, making search applications far more intuitive than the keyword based approaches utilized by current market leaders such as Google.

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