While officials at both companies call the news "rumors and speculation," The New York Post reports Microsoft has asked Yahoo! to reenter formal talks for a merger.
While Microsoft and Yahoo have held informal merger talks off and on for the past few years, some insiders believe the Redmond, Wash.-based software maker could be more eager to court Yahoo after rival Google bought DoubleClick for $3.1 billion.
"They're getting tired of being left at the altar," a banking source, who recently had talks with Microsoft, told the NY Post. "They now seem more willing to extend themselves via a transaction to get into the game."
Forrester Research analyst Charlene Li wrote in her blog that the deal, though sound, might not be feasible.
"On paper, the deal makes sense, but in the end it's going to be so hard that I don't think it will happen," Li wrote. "Given the messiness of a full out merger -- and also the limited benefit it would bring to Yahoo -- I believe that a merger won't be in the works anytime soon."
Ellen Siminoff of Efficient Frontier agreed that the rumored deal would make sense, but that it would face major execution hurdles.
"It would be a very compelling company, if it were to happen," she said. "Microsoft and Yahoo together would garner a great amount of digital media dollars. And the new company would go beyond search because of the brand recognition and data that would be available to it."
Siminoff added that Microsoft and Yahoo would also have deep pockets and the ability to give Google a run for its money.
