Microsoft is looking for alternative methods of competing with Google, aside from an all-out purchase of Yahoo, according to reports. (Associated Press)

Rather than make an all-out acquisition, Microsoft Corp. has proposed buying Yahoo Inc.'s search business and taking a minority stake in the company, according to a report.

The complex deal, reported Tuesday by Reuters citing an anonymous source, would also involve Yahoo putting its Asian assets, which include sizable stakes in Yahoo Japan and China's Alibaba Group, up for sale.

The two companies revealed the talks on the weekend but declined to reveal terms of the discussions, Reuters said. The proposal represents Microsoft's current thinking and does not yet put a value on Yahoo's search business, according to the source, who the news agency said was not authorized to speak on the record because the discussions are confidential.

Microsoft has also not ruled out a full takeover of Yahoo in the future, Reuters said.

Microsoft backed away from its proposal to acquire Yahoo for $47.5 billion U.S. earlier this month. Yahoo's board of directors had insisted on a higher price, but Microsoft declined to raise its bid.

The new deal would be an alternative method for Microsoft to compete with search leader Google Inc., as well as a way to head off an advertising alliance between that company and Yahoo.

Yahoo is in talks to display some Google ads on its search pages — a move that Microsoft is expected to lobby against and one that is likely to face antitrust scrutiny.

Google executives reportedly held an emergency meeting on Monday night to discuss their response to the renewed Microsoft-Yahoo talks, but have not yet issued any statements.

Yahoo's shareholder agreement with Alibaba requires that the Chinese company would have first rights to buy back Yahoo’s stake if it decides to sell it or if Yahoo itself were acquired.

The renewed talks between Microsoft and Yahoo were triggered by Carl Icahn, the billionaire activist shareholder, who last week threatened to try to oust Yahoo’s directors. Icahn has a four per cent stake in Yahoo and is trying to force the company to reopen talks with Microsoft.