Microsoft joins a host of other companies looking at Yahoo, which has a market value of about $20 billion and is readying financial pitch books for potential buyers, they said.
Those companies include buyout shops Providence Equity Partners, Hellman & Friedman and Silver Lake Partners, as well as Chinese e-commerce giant Alibaba and Russian technology investment firm DST Global, the sources said.
Yahoo shares jumped 10.1 percent on the news to close at $15.92 on Nasdaq, but fell back to $15.34 in after-hours trading. Microsoft shares ended 2.2 percent higher at $25.89.
Microsoft may seek a partner to go after Yahoo, one of the sources said, without identifying any parties.
No decision has been made and a bid may not materialize as there are internal divisions at the software company on whether it should pursue Yahoo again, a high-ranking Microsoft executive said.
One camp inside Microsoft is hot for the deal, believing that it would obliterate AOL Inc as a competitor and create a strong Web portal that can offer better products to audiences, advertisers and end users, the executive said.