All eyes on Yahoo for alternate deal to Microsoft

By Michele Gershberg

NEW YORK, May 4 (Reuters) - Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) faced growing pressure on Sunday to find an alternative strategy to a $47.5 billion takeover offer from Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) after the software maker walked away over a major disagreement on price.

Yahoo was likely to push for an advertising partnership with Web search leader Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz) that should help boost its operating performance in the near term, sources familiar with the matter said.

It is also still pursuing a deal with another Internet media and advertising major, such as Time Warner Inc's (TWX.N: Quote, Profile, Research, Stock Buzz) AOL, people familiar with the discussions said.

The expectation that Yahoo Chief Executive Jerry Yang has another strategy up his sleeve could help mitigate a steep descent for the company's shares on Monday, but he will face angry questions from shareholders if nothing materializes.

"There are two things that could support the stock: the potential for Microsoft to return and the potential to do a Google deal," said Clayton Moran, analyst at Stanford Group.

Moran said Yahoo shares could fall to the mid- to low-$20 range on Monday from their $28.67 close last week. That's still higher than Yahoo's close of $19.18 on Jan. 31, the day before Microsoft announced its offer.

Microsoft on Saturday sweetened its initial $31-per-share offer for Yahoo to $33, but then withdrew from the talks when Yang sought a price of $37.

Yahoo has been conducting tests with Google to outsource some of its search listings to its arch-rival. It has also held talks in tandem with AOL and Rupert Murdoch's News Corp (NWSa.N: Quote, Profile, Research, Stock Buzz).