Microsoft Move Puts Heat on Yahoo!

Updated from 3:56 p.m. EDT

SAN FRANCISCO - Billionaire investor Carl Icahn has managed to get Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks) talking about a possible merger with Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) again, but whether the software giant will follow through is an entirely different matter.

Up until now, Microsoft has repeatedly said that it's no longer interested in buying Yahoo! outright -- and seems more intent on acquiring the company's search business instead.

In talks with Icahn during the past week, Microsoft reiterated its interest in search, but also left open the potential of a merger if a new Yahoo! board is elected.

Icahn has been pushing for a merger, but he now seems amenable to a search deal.

That leaves investors with a more complicated scenario when it comes time to decide whether to re-elect Yahoo!'s current board or replace it with Icahn's slate at the company's annual meeting on Aug. 1.

Shares of Yahoo! were recently up nearly 13% to $24.10; Microsoft was up 17 cents to $26.15.

Darren Chervitz, director of the Jacob Internet Fund, says he supports a complete merger between Microsoft and Yahoo!, but is wary of a partial search deal, which could limit Yahoo!'s potential in the future.

He also wonders if Microsoft has any intention of buying Yahoo! and is only now offering support to Icahn and his slate as a way to oust the company's board, which has so far refused to sell the search business.

"They are probably much more likely to consider a search deal than a full-on deal," Chervitz says of Microsoft.

Yahoo! seems to agree, as the company reiterated on Monday that a search-only deal with Microsoft wouldn't be good for shareholders -- while challenging Microsoft to make a buyout offer if it still had legitimate interest in a merger.

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