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Sandeep Aggarwal, an analyst at Collins Stewart, is predicting that Microsoft will most certainly go on to either buy or insource search from Yahoo. According to Barrons:

Aggarwal asserts that the one thing that stands in the way of a deal is the need for Yahoo to choose a new CEO. He contends that “by now, MSFT has probably completed basic ground work for a search deal structure with Yahoo,” noting that CEO Steve Ballmer continues to express strong interest in a deal, and that “this is the time of the year when MSFT typically starts the annual strategy reviews process for each of its business units.”

He believes a MSFT/YHOO deal could be a Q1 event, if not sooner. He expect a deal to take a “sale and leaseback structure,” in which Yahoo sells its Microsoft its search assets, including technology, data centers, advertising contracts and headcount. In return, he says, Microsoft would pay $1 billion, and guarantee Yahoo at least $2.5 billion in annual search revenue and $700 million in operating expense savings.

Aggarwal repeated his previous assertion that a search deal can lift Yahoo by $8 to $10 a share; he maintains his Buy rating and $18 price target on the stock.

Ballmer had already predicted on hammering a deal with Yahoo before the end of the year, so Aggarwal’s predictions make a lot of sense.