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Microsoft, Yahoo Ink Search, Ad Deal

Microsoft (NASDAQ: MSFT) and Yahoo (NASDAQ: YHOO) have agreed to an online search and advertising partnership that will be announced by day's end, a source said.

Microsoft will not pay an upfront fee to Yahoo, and the focus of the deal is on sharing revenue between the two companies, said the source, who did not want to be identified because a formal announcement has not been made.

The news was first reported by the AllThingsDigital blog.

Microsoft and Yahoo declined comment. The two companies have talked for months about cooperating in the online advertising market, dominated by Google (NASDAQ: GOOG).

Microsoft tried to buy Yahoo last year but its $47.5 billion bid was rebuffed and Yahoo's attempt to seal a search advertising deal with Google fell apart under regulatory scrutiny.

Shares of Yahoo rose 1.6 percent in after-hours trading to $17.50 while shares of Microsoft were roughly flat at $23.45, compared with their close of $23.47.