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Microsoft sees the deal as an alternative way of competing with Google, following Yahoo's rejection of its earlier $47.5 billion acquisition bid.

As part of the deal Microsoft would take a minority stake in the company,

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while Yahoo would put its Asian assets, including stakes in Yahoo Japan and China's Alibaba Group, up for sale.

While the companies have apparently discussed the purchase of Yahoo's search business, they have yet to put a price on it, according to sources. However, Collins Stewart analyst Sandeep Aggarwal estimates Yahoo's search advertising business is worth about $21 billion, putting the value of its international assets at $9.25 billion.

At very least, the proposal from Microsoft is likely to complicate ongoing discussions between Yahoo and Google. The two companies are apparently still talking about a possible search advertising partnership.

Investor Carl Icahn launched a proxy fight last week to force Yahoo to reopen talks with Microsoft. A person familiar with Icahn's thinking says that an alternative deal for Yahoo, rather than a full acquisition, may prompt the investor to push Yahoo to do a deal with Google.