Yahoo! Chief Jerry Yang has said the company is still open to selling to Microsoft.

Google and Yahoo!’s proposed advertising deal collapsed earlier this week after months of back and forth from EU regulators and the Department of Justice. Google decided that rather than face a legal battle, it would focus on other projects and walk away from the deal. Yahoo! went on record as saying the company was disappointed that Google had stepped back from the deal, however many wondered what the next step for the smaller search company would be.

Last year Yahoo! was on the receiving end of a buyout offer from Microsoft. The ‘will they, won’t they’ talk of Yahoo! possibly accepting the offer went on for months and eventually the Microsoft said thanks, but no thanks. While Yahoo! didn’t accept Microsoft’s offer, it was clear it needed an alternative option and pretty soon, the world got wind of the planned advertising partnership with Google.

Yesterday CEO Jerry Yang said that, even though the company rejected the $33-a-share offer from Microsoft earlier in the year, the company believed the best thing for Microsoft to do would be to reconsider purchasing Yahoo!. Granted, this proves those who said the ad deal was just a way out of the deal with Microsoft right, but it could also mean more regulatory trouble for the two companies. Likely, if Microsoft was to purchase Yahoo! the Department of Justice and/or European Commission would have something to say about it.

According to TechCrunch, Yang said at Web 2.0 yesterday that the company is open to a sale to Microsoft, that it was ready to negotiate a deal and that the two companies weren’t that far apart. However he also said that the Redmond company was no longer interested in the deal.

Check out the 42-minute interview with Jerry Yang here.