David Prosser: Groundhog Day maybe, but there is still a case for Microsoft to buy Yahoo

Outlook It is only three years since Microsoft fought a bitter and ultimately unsuccessful battle to buy Yahoo. Given that the internet company is today worth less than half the $47.5bn Microsoft was prepared to pay in 2008, it would be odd if executives were not at leastthinking about the idea of making a second attempt for control.

Microsoft yesterday stuck with its policy of refusing to comment on speculation about corporate actions, following a Reuters report claiming that a resurrection of the chase for Yahoo is now under active consideration. But some in the market are taking the idea seriously – Yahoo shares initially rose more than 10 per cent on the report, before giving up some of the early gains.

Moreover, while technology analysts profess themselves unconvinced Microsoft would be willing to retread old ground, there is a compelling case for doing so. Yahoo is certainly out of favour in the tech community, which long ago decided the company was yesterday's news, but it still has plenty to offer its suitors, and Microsoft in particular.

Let's put it this way. Why wouldn't Microsoft be interested in acquiring a business that might give it a chance of transforming its search engine operation into agenuine challenger to Google, especially since it may well be able to do so at almost no cost in the medium term?

The second part of that pitch is based on the idea that once it has acquired Yahoo, Microsoft chief executive Steve Ballmer would break it up, selling on much of the business in order to recoup its investment. It would be simple enough, for example, to offload Yahoo's 40 per cent stake in China's Alibaba to the highest bidder. Other disposals would follow.

Mr Ballmer's fallback position after failing to buy Yahoo in 2008 was a 10-year deal under which the search engine's technology powers Bing, Microsoft's own search business. The agreement hasn't come cheap, with Bing required to hand over almost all of the advertising revenues it earns in payment for the service. And neither Bing nor Yahoo has managed to make real inroads into Google's 65 per cent market share in the Western world, with each stuck on around 15 per cent each of search. But properly combined, the pair of them might just stand a chance.

Remember too, that Mr Ballmer is under increasing pressure to show he has a vision for moving Microsoft on. One concern has been its inability to compete in the mobile phone market, where Apple and Google Android have disappeared over the horizon. The deal signed with Nokia earlier this year, which will see the Finnish giant put Microsoft's operating system on its smartphones, at least shows that matter is being addressed. There has not been an equivalent move towards trying to address Google's dominance in internet search, however.

It is not as if Microsoft could not afford Yahoo – it has cash on its balance sheet of more than $50bn, for which the company needs to find a use or begin returning it to shareholders. Watch this space.