Although Microsoft gave up acquiring Yahoo!, the saga continues. Last week, billionaire investor Carl Icahn sent a letter to Yahoo's chairman Roy Bostock, disclosing his plans to start a proxy fight for Yahoo!. There was an immediate response to Carl Icahn's intention to nominate candidates for election of Yahoo!'s new Board. The letter stated that Yahoo! does not believe "it is in the best interests of Yahoo! stockholders to allow you and your hand-picked nominees to take control of Yahoo! for the express purpose of trying to force a sale of Yahoo! to a formerly interested buyer who has publicly stated that they have moved on.”

Microsoft withdrew from its pursuit of Yahoo two weeks ago when Yahoo's Board after three months of negotiations rejected an offer of $33 a share, stating the company was worth at least $37 a share.

On Sunday, after Carl Icahn had threatened to replace Yahoo's board and bring the company back to the table, Microsoft proposed an alternative deal.

"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," said from the company in a statement without clarifying what that alternative might be.

The New York Times reported that Microsoft and Yahoo may form a partnership or joint venture for search-related advertising that would involve Microsoft selling display ads next to Yahoo's search results. Thus, they would oppose to Google's dominance in the search market whose share is significantly larger than is significantly larger than an eventual joint one between Yahoo and Microsoft.

Later on Sunday from Yahoo! replied that they continue to consider a number of strategic alternatives and are "open to pursuing any transaction which is in the best interest of our stockholders."

So what is forthcoming? Whether Microsoft would partner with Yahoo on a search deal or Yahoo would make a deal with Google? Is it possible a bid for full acquisition to come back at the table? Some experts believe that Microsoft withdrew only to reduce Yahoo!'s value, but what happens next, we will see.

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