Shares of Yahoo soared as much as 19% to their highest level in nearly a year after two newspaper reports said the company and Microsoft were in preliminary merger talks to take on common foe Google, a Reuters report said.
But the stock pulled back after contradictory reports said the two companies may work out a joint venture or another form of cooperation that would stop short of a full merger, the Reuters report said.
The Reuters report, quoting a source close to the situation, said that any talks had cooled.
The Reuters report also said the Wall Street Journal initially reported that the two companies had engaged in merger talks in recent months, but it said later that those talks were no longer active.
The New York Post meanwhile reported that Microsoft had made an offer to buy Yahoo a few months ago, but Yahoo spurned the advances.
The paper, which put a price tag of $50 billion on a Yahoo takeover, said discussions continue between the two companies.
Yahoo's market value shot to $45 billion from $38 billion before the report.
Microsoft is valued at a little more than $300 billion.
Both companies declined to comment, the Reuters report said.
The Reuters report further said analysts have dismissed a takeover of Yahoo by Microsoft since the two companies have such different cultures and Microsoft usually prefers to buy small companies with interesting technology.
Both companies are facing a serious threat from Google, the report further said.