Microsoft is not looking to bid to buy all of Yahoo but is in talks about other types of deals with the U.S. No. 2 search engine, Microsoft CEO Steve Ballmer said on Wednesday.
"We are not bidding to buy Yahoo," Ballmer said at the launch of Microsoft's new research and development centre in Israel.
"Yet, we are trying to have discussions about deals with Yahoo that might create value, but not a whole acquisition of the company," he said without elaborating further.
Earlier this month, Microsoft walked away from a proposal to acquire Yahoo for $47.5 billion, or $33 per share, after Yahoo rebuffed the offer, saying it would only settle for $37 a share.
Microsoft has now made an alternative offer, proposing to buy Yahoo's search business and take a minority stake in the Web firm, a person familiar with the discussions told Reuters this week.
Should a deal be completed, it would forge an alliance between the two companies that would represent an alternative means of competing with rival Google , which has turned into an online advertising powerhouse.
For its part, Yahoo has said it was considering a "number of value maximizing strategic alternatives" and would evaluate any proposal made by Microsoft.
Yahoo on Sunday confirmed with Microsoft that it was not interested in pursuing an acquisition of all of the company but it remained open to pursuing any deal in the best interest of stockholders.
Investor Carl Icahn last week launched a proxy battle in order to pressure Yahoo to agree to be sold to Microsoft.
A number of other large Yahoo shareholders have since said they would back Icahn.
Microsoft is also believed to be interested in buying social network site Facebook as a means of expanding its Internet business.
Microsoft already has a small stake in Facebook.
"There's nothing particularly new on that front," Ballmer said. "We have a great relationship with Facebook and we look to continue to invest in that partnership."