IN TALKS: Google's Mr Eric Schmidt and Yahoo's Mr Jerry Yang (next picture) are said to be in talks to trump Microsoft, which Google accuses of seeking to extend its monopoly deeper into the Internet. -- PHOTOS: BT FILE PHOTO, REUTERS

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Yahoo management was considering revisiting talks it held with Google several months ago on an alliance as an alternative to Microsoft's bid, the source said. At US$31 a share, Yahoo believed the bid undervalued the company, two sources said.

A second source close to Yahoo said it had received a procession of preliminary contacts by media, technology, telephone and financial companies. The source said, however, they were unaware whether any alternative bid was in the offing.

In a memo to Yahoo employees on Friday, Yahoo leaders wrote: 'We want to emphasise that absolutely no decisions have been made - and, despite what some people have tried to suggest, there's certainly no integration process under way.'

Few natural bidders exist beside Google that can engage in a bidding war, and Google is unlikely to win approval from antitrust regulators, some Wall Street analysts said.

The Wall Street Journal reported on its website on Sunday that Google's chief executive, Mr Eric Schmidt, called Yahoo founder Jerry Yang to offer his company's help in any effort to thwart Microsoft's bid.

Yahoo's efforts to find an alternative bidder could simply be a measure to pressure Microsoft to boost its bid, which valued Yahoo at US$44.6 billion when first announced on Friday.

Sanford C. Bernstein analyst Jeffrey Lindsay wrote in a research note that 'the Microsoft bid of US$31 is very astute' because it placed pressure on Yahoo management to take actions that could unlock the underlying value of Yahoo assets, which he estimated were worth upwards of US$39 to US$45 a share.

Separately, Google fired back on Sunday at Microsoft's bid to acquire Yahoo, accusing Microsoft of seeking to extend its computer software monopoly deeper into the Internet realm.

Mr David Drummond, a Google senior vice-president and its chief legal officer, said in a blog post that the combination of Microsoft and Yahoo could undermine competition on the Web and called on policymakers to challenge the combination.

Microsoft responded to Google's arguments by saying that a merger with Yahoo would create a 'compelling No. 2 competitor for Internet search and online advertising' to market leader Google.

Mr Drummond argued that Microsoft's power stemmed from decades-old monopolies in its Windows software operating systems and Internet Explorer, the dominant browser consumers used to view the Web.

Microsoft's proposed merger with Yahoo would combine the No. 1 and No. 2 suppliers of Web-based e-mail, instant messaging and portals, which act as starting points for hundreds of millions of users seeking information on the Web.

The Google executive has argued in an official blog post that Microsoft may be looking to favour Microsoft and Yahoo services by pushing customers to other Web services they own instead of letting customers use rival services.

Microsoft executives said Google - not Microsoft - was the one company antitrust regulators were likely to bar from buying Yahoo, based on Google's dominance in Web search, citing industry data showing that Google had a 75 per cent share of worldwide Web search revenue.

REUTERS