Option investors bet heavily on Monday that Yahoo might strike a deal of some sort with Microsoft Corp, spurred on in part by pressure from activist shareholder Carl Icahn.

Microsoft has proposed an alternative deal for Yahoo, a complex transaction that would include just buying Yahoo's search business, rather than a full buyout, a person familiar with the discussions said on Monday.

We have seen extensive press coverage of Microsoft's pursuit of Yahoo over the last few months, including notably excellent coverage from Silicon Alley Insider and the Wall Street Journal. However, I have not seen a detailed analysis of how a full hostile takeover might play out -- the kind of analysis that you would be receiving if you were a Microsoft or Yahoo board member.

Neither Microsoft Corp (MSFT.O: Quote, Profile, Research) nor Yahoo Inc (YHOO.O: Quote, Profile, Research) wants to blink first in the software giant's proposed $41.7 billion takeover of the Web pioneer but as the gamesmanship drags on, archrival Google Inc (GOOG.O: Quote, Profile, Research), the merger's raison d'etre, is the biggest beneficiary.

Microsoft’s proposed $45 billion buy of Yahoo would give the Redmond, Wash company control over a top open source e-mail company, open source projects and an open source infrastructure. On September 17 of 2007, Yahoo bought Zimbra for $350 million. Yahoo’s infrastructure is built on BSD. Yahoo has released a myriad of software to the open source community and even sponsors some open source projects. So this deal would put Microsoft directly into the open source software business.

Google Inc. raised the specter of Microsoft Corp. using its proposed $42 billion acquisition of Yahoo Inc. to gain illegal control over the Internet, underscoring the online search leader's queasiness about its two biggest rivals teaming up.

Google Inc. Chief Executive Eric Schmidt called Yahoo Inc. CEO Jerry Yang to offer his company's help in any effort to thwart Microsoft Corp.'s unsolicited $44.6 billion bid for Yahoo, say people familiar with the matter.

Microsoft wants to acquire Yahoo search and is seeking partners, including Time Warner and News Corp., to take over the rest of Yahoo's business

After several months of discussion and speculation, the Microsoft-Yahoo buyout deal is apparently off. At least, that's what both Microsoft and Yahoo announced over the weekend. There is some speculation that Microsoft CEO Steve Ballmer made his announcement in order to topple Yahoo's share price, in order to make another offer at a lower price.

Yahoo! is hiring Microsoft employees to join its top ranks; Google negotiations carry on nonetheless