In recent days, it's been reported that Microsoft is considering buying Yahoo's search business for as much as $20 billion in a couple years. The price tag seems a bit high for Yahoo's search unit, when the entire company is worth $15 billion. In fact, Yahoo's search business is worth more like $2 billion, as estimated by  Sanford Bernstein analyst Jeff Lindsay, who was on an All Star Analyst Panel I moderated at the AlwaysOn Venture Summit this week.

Lindsay said that at best the search business could generate some $800 million in three years, based on how much revenue Yahoo would have brought in if it had done a search deal with Google. Potential revenue would have to be discounted in a Microsoft relationship. To this end, Yahoo's search business should be worth $2 billion at the low end, and possibly $5 billion, with a premium, said Lindsay.

Under the terms of the complex deal, reported by the Times of London, Microsoft would provide a $5 billion facility to Jonathan Miller and Ross Levinsohn of Velocity Interactive Group, who in turn would raise an additional $5 billion from other investors. (Lindsay considers Miller an ideal CEO candidate for Yahoo,)

The cash would have been used to buy convertible preference shares, giving Velocity and Microsoft a 30% stake in Yahoo. It's estimated that such an operating agreement would boost Yahoo's by as much as $2 billion per year. Velocity's Levinsohn has said that a deal was news to him.

It would be surprising news to the analyst community as well.