And the winner is ... Google. The shadow cast by the internet search giant has formed the backdrop to Microsoft’s bid to take over Yahoo all along. It now appears to have also helped to stymie a deal.

Since Microsoft’s offer was announced, Yahoo has desperately cast around for alternatives. A mooted tie-up with Time Warner’s AOL unit looked messy, lacking a firm headline price for Yahoo’s investors. Now, if Microsoft’s letter announcing the withdrawal of its offer is anything to go by, Yahoo appears to be banking on outsourcing its paid search business in some way to Google as an alternative to an outright sale. In theory, that would free Yahoo to focus on other businesses where it actually has a chance of competing successfully, while still reaping some cashflow from a search joint venture. If combined with an AOL merger, Sanford Bernstein reckons this arrangement could push Yahoo’s valuation to $37 per share. Even if cleverly structured, however, such a deal would, in substance, still involve some sort of agreement between the number one and number two search providers. It is hard to imagine antitrust regulators being comfortable with that.