The Wall Street Journal reports that Microsoft is talking to Time Warner Inc. and News Corp., among others, about joining it in a deal that would effectively lead to Yahoo's breakup. It seems that a couple of weeks ago, Ballmer called Yahoo! Chairman Roy Bostock and suggested they meet to discuss a new proposal involving other 'partners'. The meeting, scheduled for Monday, was then scrapped because Ballmer again bailed out. Meaning that he likely couldn't find any viable partners in the interim who were intereted enough to join in on the discussion. The article also has some other stuff about Microsoft rejecting a $33 Yahoo offer in mid-May.

But the key issue here, which needs further analysis, is Ballmer's line of thinking. First of all, its a given that he's no longer interested in a full buyout. Which means that what the 'new' deal was supposed to all about is that Microsoft, along with other allies like Time Warner Inc. and News Corp., each buy a piece of Yahoo! Inc. Microsoft gets the search business, and the others get bits and pieces of other Yahoo assets. For Yahoo shareholders, it would be as good as a full buyout, while for Microsoft, it would be the best of both worlds - Getting their hands on search without having to buy the full company. Its actually incredibly brilliant, if only Ballmer can convince the 'others' to snap up the rest of Yahoo.

Ballmer and Yang still have one month to figure this out. If they don't, Icahn will likely do it for them. Meaning that if he wins the proxy fight, he'll do what Microsoft wants to do. Sell them search and then find buyers for the other parts. I can assure you that the net price paid, per Yahoo share, will end up at or most likely above $30, if this proposal comes to pass.

Update 1: WSJ report now says that Yahoo is also in talks with Time Warner Inc. The two companies are talking about a structure they began discussing as an alternative to Yahoo selling itself to Microsoft several months ago -- an arrangement whereby Time Warner would fold its AOL unit into Yahoo and take a minority stake in the combined venture.

So everybody's talking to everybody else, but here's the thing - The Yahoo Board has no intention of selling out. All its actions - Refusing multiple MSFT offers, tying up with Google for an ad deal, talking to Time Warner for a merger with AOL where AOL dissappears, rather than Yahoo - are simply meant at shoring up its finances while keeping control over the firm. Microsoft, on the other hand, wants to buy out the search business, and to that end, they're looking for a way to end Yahoo's independence. Basically, both Microsoft and Yahoo are digging parallel tunnels from opposite ends, and they're never going to meet mid-way.

Only solution to this impasse is for the Yahoo Board to be kicked out, and the new Board, persumably under Icahn's control, will turnaround and leave the tie-up details to Microsoft. Failing that, this talk-fest could continue well into the year end, with Yahoo stock falling to below $15 as hopes dim for a huge takeover or merger. August 1 is the deadline. After that, Yahoo shares will be in freefall if Jerry Yang remains as Yahoo CEO.