Microsoft tried to shrug off its rejection by Yahoo! yesterday after insisting that it was looking for other ways to spend its $50 billion (£25 billion) acquisition pot.

The software company was forced to abandon its $47.5 billion approach for Yahoo! this month, after the online search company insisted on a higher price and threatened to hive off the most lucrative part of its business should Microsoft turn hostile.

Since then Microsoft has reopened talks to buy a much smaller part of Yahoo! and acquire a modest, passive stake in the internet group.

Both companies are discussing the feasibility of combining their online advertising businesses.

At a conference in Moscow yesterday, Steve Ballmer, the chief executive of Microsoft, said: “You can buy a whole lot of things for $50 billion.”

It is understood that after Microsoft walked away from the initial talks, the company was both approached, and itself contacted, by a number of parties that had also been in discussions with Yahoo!. Of those, it is believed that Microsoft began talks with Time Warner with a view to buying AOL, the cable company's internet arm.

Mr Ballmer said: “Yahoo! was never the strategy we were pursuing - it was a way to accelerate our online advertising business. We will spend money on some acquisitions.” Microsoft needs to do a deal to compete more effectively with Google, the world's biggest internet company. Google holds the lion's share of the online advertising market, estimated to be worth $40 billion a year and which is expected to double by 2010.

Mr Ballmer had argued three weeks ago that the main reason the company had walked away from Yahoo! was because of price. He had said: “We are interested to pay for it [Yahoo!] at some level and beyond that level we're not willing to pay for it.” Although Mr Ballmer offered to raise his valuation of Yahoo! from $31 a share to $33 a share, Jerry Yang, the co-founder of Yahoo! said that he would not sell for less than $37.

Although Yahoo! has managed to dodge a full takeover from Microsoft, it also has to contend with the threat of a boardroom coup orchestrated by Carl Icahn, the billionaire shareholder activist.

Mr Icahn has acquired a 4 per cent stake in Yahoo! and has sought regulatory clearance to more than double his holding to launch a proxy fight against the board of the internet company, and remove ten of its directors.

Mr Icahn is trying to force Yahoo! to restart full merger talks between Yahoo! and Microsoft.

Mr Yang bought time on Thursday after the company delayed the date of its annual meeting, which had been scheduled for July 3. It would have been at that meeting when Mr Icahn would have sought to depose the board.

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