Microsoft is “open to large acquisitions”, Steve Ballmer, the chief executive, has said.

The comments follow speculation last week that the world’s largest software developer is mulling a bid in excess of $50 billion (£25 billion) for Yahoo!, the internet group, to compete more effectively with Google.

“We have not, by default, opted for acquisitions as part of our strategy … but we don’t count them out either,” Mr Ballmer told the Software 2007 conference in Silicon Valley yesterday.

“In general, though [we have concentrated on] smaller deals, we are open to large acquisitions.”

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Mr Ballmer declined to comment on whether Microsoft could consider a deal on the scale of a Yahoo! acquisition but did say that “anything is conceivable”.

Reports suggesting that pair have met to discuss a tie-up sent shares in Yahoo! sharply higher on Friday.

He also noted that Microsoft bought between 15 and 20 companies in the past year, targeting enterprises that fill gaps in its portfolio.

But the company failed to buy DoubleClick, the largest broker of display — or banner — advertising on the web, which was bought by Google for $3.1 billion this year.

Microsoft, which has about $30 billion in cash on its books, is thought to have matched that price only to be rebuffed.

Microsoft released figures this month that appeared to vindicate its $5 billion investment in Vista, the latest version of Windows.

Quarterly profits jumped 65 per cent to $5 billion, compared with the same period a year earlier, beating Wall Street’s expectations on strong sales of the operating system.

However, the company has made it clear that catching Google in the online advertising market is a priority.

Analysts have agreed that Microsoft needs to compete more effectively with Google, but are concerned that a Yahoo! acquisition would create an unmanagably large group in which clashes of cultures and overlaps of technologies would be rife.

Another option understood to be being discussed by Microsoft and Yahoo! would involve the two co-operating more closely in those parts of their businesses that compete with Google.

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