"Microsoft has said publicly that they are not interested in buying the whole company, and I believe them. But they are interested in doing a deal on search, and we should pursue that," Icahn was quoted by Barron's.
Earlier this year, Icahn threatened to launch a proxy fight against Yahoo and oust Yang in an effort to push the company to accept Microsoft's offer. He later struck a deal with Yahoo and joined its board.
Icahn began amassing Yahoo shares during the company's merger talks with Microsoft.
The 'Sunday Times' said senior directors at Microsoft and Yahoo are understood to have agreed on the broad terms of the deal, but there is no guarantee it will succeed.
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