Microsoft has abandoned plans to acquire Yahoo!, but the internet search major would still love to work with the software giant, if Jerry Yang, chairman and chief executive of Yahoo, is to be believed.

Yang said Microsoft Corporation is still discussing potential partnerships with his company after walking away from a $47.5 billion takeover bid this month. Microsoft bid $33 a dare for Yahoo, up from its previous offer of $31 a share, but Yahoo demanded $37 a share and rejected the offer as still too low.

"They are discussing various other ideas and partnerships with us and we're listening," Yang said at the 'D: All Things Digital' conference in Carlsbad, California. "They clearly have some interest in Yahoo in some shape or form,'' he said.

Microsoft, he said, was no longer interested in buying Yahoo, but is discussing various other partnerships.

"We definitely have to understand what they are proposing. They clearly have an interest in Yahoo and we need to understand more," Yang said.

Microsoft, which trails Google Incorporated in the $41-billion market for online advertisements, sought to acquire Yahoo to bolster its web prospects. Microsoft trails Google and Yahoo, ranking third in the internet search market. But it abandoned its bid on 3 May after Yahoo demanded a higher price.

"We did not walk away from that proposal. Microsoft did," Yang said. "I've always said we're willing to do a deal at the right terms."

Yang, who co-founded Yahoo in 1994 and took the reins as CEO last year, said he may lack all the experience of running a big company, but, ``I do think I'm the best person to lead Yahoo.''

Yang admitted a merger with Microsoft would have had a "tremendous amount of power". But he insisted it was Microsoft which broke off talks over price.

Yahoo faces a proxy fight for control of its board from billionaire investor Carl Icahn, in late July, who proposed his own list of directors and won support from investors like John Paulson's Paulson & Co., BP Capital LLC chairman T. Boone Pickens and investor Daniel Loeb.

All of Yahoo's directors are up for re-election, and Yahoo delayed an annual meeting from  3 July until the end of the month. It is, however, unlikely that Ichan will have his way.

Based in Sunnyvale, California, Microsoft, whose online division was its only unprofitable unit last quarter, began pursuing a takeover of Yahoo on 31 Jan. It ended discussions after offering as much as $33 a share. Yahoo had demanded $37.

Yahoo has been exploring alternative alliance plans with other groups, including Rupert Murdoch's News Corp and internet search giant Google Inc, and the bid failure has hurt Yahoo more than Microsoft.

Yahoo has been in talks with Google to jointly sell ads as Google charges more than Yahoo. The two were also planning to arrange an outsourcing agreement that would pass US Justice Department antitrust scrutiny.

Google sold internet ads at a 70 per cent margin to Microsoft in the latest fiscal year. Google also handled 61.6 per cent of US web searches last month, more than Yahoo and Microsoft combined. 

In an interview at the `D' conference, Microsoft chief executive Steve Ballmer said discussions had broken down largely over price. "It became clear there was a difference between the bid and ask," he said, using stock trader terms.