Microsoft, Yahoo mull media partner options: sources

By Eric Auchard and Kenneth Li

SAN FRANCISCO/NEW YORK (Reuters) - Microsoft Corp and Yahoo Inc have been holding separate talks with other potential media partners after their negotiations with each other broke down, sources familiar with the companies' thinking said on Wednesday.

Microsoft -- rebuffed this year in efforts to buy all of Yahoo and then just its search business -- is talking about alternative deals with Time Warner Inc, which owns AOL, and News Corp, parent of MySpace, a source close to Microsoft said, but any negotiations remain in preliminary stages.

Meanwhile, talks have continued for months between Yahoo and Time Warner over a potential merger of AOL with Yahoo to create a more formidable advertising and media player, but they are no closer to a deal, a source close to the matter said.

Shares of Yahoo jumped as much as 9 percent on Wednesday after the Wall Street Journal reported that Microsoft, positioning for a new run for Yahoo's search business, had in recent days approached media companies to join together on a deal that would effectively lead to Yahoo's breakup.

However, a Reuters source and a CNBC report, citing unnamed sources, later said there were no new talks or negotiations.

The Journal also said Microsoft met with activist investor Carl Icahn in recent days to encourage him to press his proxy battle for control of Yahoo's board, the first sign Microsoft welcomed his month-old campaign. This development also was attributed to unnamed sources familiar with the talks.

Icahn was not available to comment on the report.

Microsoft, Yahoo, Time Warner and News Corp all declined comment.