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Kara Swisher at All Things Digital always gives me grief when I do this, but I’m going to do it anyway: Namely, point to a rumour — in this case, a rumour in the Times of London about Microsoft MSFT) making some kind of convoluted deal to proceed with what amounts to a creeping takeover of Yahoo (YHOO) (Update: Kara says that sources tell her it is “total fiction”).

According to the report, the deal would involve Ross Levinsohn (formerly of Fox Interactive Media) and Jonathan Miller (formerly of Yahoo) raising $5-billion and Microsoft putting in another $5-billion, and the two groups acquiring a 30-per-cent stake in the troubled Web giant, which Levinsohn and Miller would run. Microsoft would manage the search business and would have a call option on buying the whole enchilada for $20-billion.

MG Siegler at VentureBeat says he ran this report by Levinsohn, who said he had no idea what the paper was talking about, which would normally put such a rumour to rest pretty quickly, except for a couple of things: The first is that this is a pretty detailed story in the Times of London, a paper not known for running off at the mouth with crazy rumours. If it had appeared in the Daily Mail or the Inquirer or something like that, then I would be dubious. But this particular report has plenty of detail, although there are no sources given (just the usual oblique phrase “it is thought”).

The second reason for believing something might be up, even if it’s not this specific deal, is the simple fact that Microsoft desperately wants Yahoo’s search business, and Yahoo just as desperately wants to dance with the giant software company somehow. Although Steve Ballmer keeps saying he isn’t interested in Yahoo, a lot of that could be designed to push the stock price down and make it easier to acquire the whole company — and even when he tries to put the kibosh on a takeover, he has left the door open for a search deal.

The Levinsohn-Miller arrangement seems overly complicated to me, but it’s not hard to believe that something is up.

Source: Microsoft and Yahoo: Anything Brewing?