New Microsoft Bid for Yahoo Search?

Microsoft (NASDAQ: MSFT) is preparing a new bid for Yahoo’s (NASDAQ: YHOO) search business and has approached other media companies about joining it in a deal that would effectively lead to Yahoo’s breakup, The Wall Street Journal said.

Microsoft has already held talks with Time Warner (NYSE: TWX) and News Corp. (NYSE: NWS), among others, the paper quoted people familiar with the talks as saying.

The discussions are preliminary and unlikely to result in a deal with Yahoo, the paper said.

The Journal said that two weeks ago, Microsoft Chief Executive Steve Ballmer called Yahoo Chairman Roy Bostock to suggest they meet to discuss a new idea involving other partners.

The meeting was subsequently canceled by Microsoft, which Yahoo took as a sign that Ballmer’s efforts to find a partner have so far failed, the paper said.

Neither Microsoft, Yahoo, Time Warner nor News Corp.were immediately available for comment.

Yahoo rejected a $47.5 billion takeover offer by Microsoft, and earlier this week questioned whether the software maker was ever serious about a full-scale merger. However, Yahoo remains open to discussing any proposal from Microsoft, the paper said.

In the meantime, Yahoo investor Carl Icahn is running a slate of directors to replace Yahoo’s board and has called for the removal of Chief Executive Jerry Yang ahead of the company’s annual shareholder meeting to be held in Silicon Valley on Aug. 1.

The activist shareholder has said the company should still offer to sell itself, though Microsoft has said it is no longer interested in a full buyout.

However, representatives for Microsoft have in recent days met with Icahn to encourage him to press his proxy contest as a way to keep pressure on Yahoo to enter into a deal that would lift its share price, the paper said, citing people familiar with the matter.

[cob:Special_Report]In electronic trading before the NASDAQ open, Yahoo shares rose about 6 percent, or $1.30, to $21.50. On Tuesday the stock closed at $20.20, its lowest session-ending level since Jan. 31, the day before Microsoft first made public its offer to buy Yahoo.

Microsoft shares were little changed, up 2 cents at $26.89 on volume of just 400 shares. Microsoft shares closed Tuesday at $26.87, their lowest closing level since March 2007.

In a volatile session, the stock had dropped to as low as $23.19, its lowest in nearly two years.