Microsoft-Yahoo! Is Only Mostly Dead

But the alternative Microsoft was seeking -- a deal to buy Yahoo!'s search-based advertising -- though a good prospect for Microsoft, did not make sense for Yahoo!, Patience says. "If you take away search-based advertising, Yahoo! would be left with a shell of a company" consisting mostly of content-generation and display-based advertising. "That's not a particularly interesting business," he added.

Even after Microsoft abandoned buyout talks in early May, activist shareholders have pushed hard to force a deal on the two companies. Icahn has proposed an alternative slate of candidates to replace its current board and has advocated a full merger with Microsoft.

Icahn, who has yet to weigh in on Thursday's developments, appears to be going ahead with his proxy fight and remains the merger's wild card.

What hasn't changed since yesterday is Microsoft's interest in securing a bigger foothold in the Web business. With Yahoo! still offering the best chance to achieve that, it could be too early to say 'never.'