After a lot of speculation earlier, The UK’s Times Online is reporting that Microsoft is in talks to acquire Yahoo’s online search business for $20 billion and install Jon Miller and Ross Levinsohn to run the company.

The whole thing may sound very reasonable to you, but the price sounds really ridiculous as Yahoo’s whole market cap right now is only about $15 billion.

Times Writes:

The proposal forms the centrepiece of a complex transaction that would see Microsoft support a new management team to take control of Yahoo. But there is no intention of Microsoft tabling another takeover bid for the web giant, after its aborted $47.5 billion offer this summer.

It is thought that Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, have been lined up to lead the new management team. Senior directors at Microsoft and Yahoo are understood to have agreed the broad terms of a deal, but there is no guarantee that it will succeed.

Kara Swisher at AllThingsD reports:

A report in the Times of London in which Microsoft would buy Yahoo’s search business in a convoluted $20 billion deal that would include well-known Internet execs Jon Miller and Ross Levinsohn, is–in the words of one key player–”total fiction.”

Actually, that’s Levinsohn speaking, on the record. But that’s also the essential word from all key players regarding the Times’ report.

BoomTown has spoken to top sources at Yahoo (YHOO) and Microsoft (MSFT) too and all scoff at such a deal now taking place or that either side has been in any such discussions of late.

As you can see one of the key player of this mysterious rumor – Ross Levinsohn has called it – ”total fiction.” But how can this be another stupid rumor when Times is reporting the deal in such detail as below:

Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team. The duo would raise an additional $5 billion from external investors.

This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo.

The external investors would also have the right to appoint three of Yahoo’s 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services.

Microsoft CEO Steve Ballmer has said repeatedly that they are not interested in buying Yahoo, although he has not completely ruled out a search deal of some sort.

But sources at Microsoft has said that they have been waiting for Yahoo to get another CEO in place, after Yahoo CEO Jerry Yang recently announced that he will be stepping down from his position for good.

But some folks at Yahoo has also said recently that it is not currently engaged in any kind of talks with Microsoft, even about a more likely search deal.

So Is this whole thing another rumor? Who Knows….Only time will tell! Share your views in comments!

Visit Techmeme to see all the discussion that are going around this deal.

Update

Michael Arrington of Techcrunch spoiled all the thrill by actually confirming the news with both Microsoft & Yahoo. And guess what…. both the parties completely denied all allegations!

Read What Others Are Saying about This

Another Microsoft Yahoo Deal in the Works? – ReadWriteWeb

A new, elaborate $20 billion deal for Microsoft to buy Yahoo Search? – VentureBeat

Microsoft-Yahoo Deal Back On? – Shoemoney

Report: Microsoft In Talks with Yahoo Again – The Microsoft Blog

Update: Microsoft, Yahoo reportedly in talks – The Microsoft Blog

Reports Of New Microsoft-Yahoo Search Deal Hard To Believe – TechCrunch