Like the soap opera it has become, the workings behind a deal between Microsoft and Yahoo! just don’t ever seem to end.  This week we’ve seen a Yahoo! PowerPoint presentation that tries to place all the blame on the failed deal on Microsoft, Microsoft’s purchase agreement with Powerset, the apparent launch of a formal US Justice Department investigation into the Google-Yahoo! search deal, and now a new Wall Street Journal article reporting new talks between Microsoft and Yahoo!, only now possibly including either Time Warner, Inc (AOL), or News Corp. (MySpace).

According to the Washington Post, the ad deal that Yahoo! struck with Google after Microsoft’s Steve Ballmer backed out (which Yahoo! desperately tried to talk them out of, it turns out – more below) is under formal scrutiny by the Justice Department:

Investigators are planning to demand documents not only from Google and Yahoo, but also from other large companies in the Internet and media industries, said the sources, who spoke on condition of anonymity because the investigation is ongoing.

Google and Yahoo officials have said since the deal’s announcement that they would delay its implementation for a voluntary Justice Department review. But a formal investigation signals that the department may have found some cause for concern.
…
But lawyers familiar with similar investigations said that the kind of legal requests being issued by the Justice Department in this case — “civil investigative demands” — are not used for routine matters.

“They don’t do it without having identified significant issues,” said M.J. Moltenbrey, a Freshfields Bruckhaus Deringer lawyer who was director of civil non-merger enforcement in the Justice Department’s antitrust division in the 1990s. “It involves approval at higher levels within the antitrust division.”

And then tonight, the Wall Street Journal reports that “Microsoft Corp., positioning itself for a new run for Yahoo Inc.’s search business, has approached other media companies in recent days about joining in a deal that would effectively lead to Yahoo’s breakup…”.

Microsoft has held discussions with Time Warner Inc. and News Corp., among others, say people involved in the talks. In the past, Microsoft has floated an arrangement under which it would acquire Yahoo’s search business and another partner, such as News Corp.’s MySpace or Time Warner’s AOL, would combine forces with what remained of Yahoo.

The Journal article goes on to provide a detailed timeline of Yahoo!s attempts to get Microsoft back to the table after Ballmer pulled out, up to and including the color of Ballmer’s shirt (I don’t want the WSJ to go all AP on me – it’s a very good read, but behind a paid firewall).

With Yahoo! stock about to dip below $20 per share, and the Board of Directors elections coming up in a month, things aren’t looking good for Yahoo! right now, even with the Google deal.  Will Microsoft be able to put together a deal with either AOL or MySpace in play?  Will the Justice Department begin to chip away at the seemingly impregnable Google?  Will Powerset, cashback, an HP deal, and a new Search Technology Center be enough to begin to turn the tide?

As The World Turns, indeed.

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* “Swung on and lined down the left field line for a base hit…Here comes Joey… Here comes Junior to third base… THERE GONNA WAVE HIM IN!! THE THROW TO THE PLATE WILL BEEEEEEE LATE!! THE MARINERS ARE GOING TO PLAY FOR THE AMERICAN LEAGUE CHAMPIONSIP!! I DON’T BELIEVE IT! IT JUST CONTINUES! MY, OH MY!!”