Yahoo is deep in talks with Softbank to engineer a value-creating transaction for Yahoo's 35 percent ownership stake in Yahoo Japan, but neither side has agreed on the structure of a deal that would either allow Yahoo to exit in a tax-efficient manner or give its ownership stake more visibility as an asset, according to people working on the deal. Softbank owns 42 percent of Yahoo Japan.

The talks have been ongoing for weeks. Right now, Softbank’s bankers have been making proposals to Yahoo's bankers about a structure for an exit, but no one strategy has been decided on.

Investors who follow Yahoo have already taken note of the likelihood of a potential deal for the Yahoo Japan stake, one reason why its shares rallied in early February.

First, there was a noted change in language when management discussed the Yahoo Japan stake on its last earnings call.

Then, two weeks ago, the company's CFO had this to say at an investor conference: “We’re now working with our partners, Yahoo Japan’s management team, Softbank, to collaborate and find a way to best unlock the value of this asset. So we went with a list of things that we’re talking to them about, they’ve added to the list, we’re in a good discussion.”

Yahoo has been under pressure from shareholders to figure out a way to effectively monetize its stake in both Yahoo Japan and its 40 percent ownership in Alibaba. Taken together the two stakes represent a great deal of the company's value.

Last spring, and again in the late fall, Yahoo and Alibaba founder Jack Ma and Softbank founder Masayoshi Son tried and failed to reach a so called holistic deal in which Yahoo would tax-efficiently exit both stakes. The problem is that each party’s desires are not consistent with the creation of such a deal.

Masa Son, as he is known, would prefer not to buy back shares of Yahoo Japan from Yahoo. His goal, say people familiar with his thinking, is to increase Softbank’s ownership stake in Alibaba.

If Yahoo were to sell that stake back to Alibaba it would trigger accretion rights for Softbank that would help Masa Son meet that goal. Alibaba, meanwhile, would like to buy back the Yahoo stake without tripping Masa Son's accretion rights. He also has a veto over a sale of Yahoo's stake in Yahoo Japan.

Throw in the fact that Jack Ma and Yahoo CEO Carol Bartz are not on good terms and you can see why the holistic approach has fallen apart.

The structures being considered by Yahoo for its Yahoo Japan stake are for a cash-rich spin that could effectively mitigate the tax hit if it includes a five-year active trader business. Also being considered is a tracking stock for the Yahoo Japan stake—that deal would not appear to require Softbank’s consent, but might be met with yawns by investors.

While other reports have Yahoo negotiating to sell the stake back to Yahoo Japan, that is not high on the list of considerations at present, according to people close to the talks.

Of course, all of this takes place against a backdrop of difficulty for Yahoo core business.

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