And in a dig against online search market leader Google, the companies said in a joint statement that 'advertisers no longer have to rely on one company that dominates more than 70 percent of all search'.

A Yahoo-Microsoft partnership would mean about 28 percent of Internet searches would be performed on their combined platform, according to figures from ratings firm comScore Inc.

That would still be less than half of the about 65 percent market share of Google Inc., which has long dominated the search space.

Last year, Microsoft attempted to buy Yahoo for more than $45 billion, an unsolicited bid Yahoo rejected, but the Redmond, Washington-based software giant has long had Yahoo's search business at the top of its wish list, and the two had reportedly been in discussions for months.

Yahoo estimated the deal would add $500 million to its annual operating profit, as well as saving it around $275 million in expenses related to developing and maintaining its own search technology.