Unable to strike a deal on its own, Microsoft reportedly is hoping to snap up Yahoo's online search operations with the help of News Corp. and Time Warner.
An Associated Pres report also said the latest twist in Microsoft's convoluted courtship caused Yahoo's shares to rise more than 3%, even though the chances of a deal getting done still seemed remote.
If nothing else, the enthusiastic reaction to the unconfirmed report in The Wall Street Journal served as another reminder that investors want Yahoo to pursue a different path than the one mapped out by CEO Jerry Yang.
And that could be bad news for Yang, who started Yahoo as an internet directory 14 years ago.
Unless he can sway shareholder sentiment before Yahoo's annual meeting August 1, Yang could lose his job in a boardroom coup being attempted by investor Carl Icahn.
Recognizing Yahoo's vulnerability, Microsoft is trying to recruit News Corp., Time Warner's AOL or other media partners to put together a joint bid that would slice Yahoo into pieces, according to the Journal.
The story cited undisclosed people familiar with the discussions.
Microsoft declined comment. A Yahoo spokeswoman didn't immediately return a call seeking comment.
Under the reported breakup plan, Microsoft would emerge with Yahoo's online search operations, the main object of the software maker's desire since it began stalking Yahoo as long as ago as 2006.