Yahoo brings two titans to the table

NEWS Corp has reportedly waded into the $50bn Yahoo battle, with suggestions the group is holding talks Microsoft to bolster it's bid.

NEWS Corporation has reportedly waded into the $50 billion battle for the future of Yahoo, with suggestions the group is holding talks with Microsoft about adding its weight to an expanded bid for the struggling internet giant.

The development could result in the merger of Yahoo with Microsoft's MSN internet businesses and News Corp's social networking site, MySpace.

But any joint move by Microsoft and News could face stiffening resistance from Yahoo, with reports suggesting the portal and internet search directory is itself in discussions with Time Warner's AOL about the two companies joining forces to combine their online operations.

Yahoo's reported negotiations with AOL are being seen as a direct attempt to make it harder for Microsoft to control the portal. The reported move by News Corp, which owns The Australian, to enter the fray for Yahoo follows Microsoft's February $US44.6 billion takeover bid for the group.

News has been mulling an alliance with Yahoo for much of the past year.

Last June, it emerged News had held talks about relinquishing control of MySpace to Yahoo in exchange for a quarter of the enlarged group.

The launch of the Microsoft bid in February seemed to deal a blow to News Corp's ambitions for Yahoo. News chairman Rupert Murdoch told a US banking conference last month that a bidding war with the software giant was out of the question.

"We're not going to get into a fight with Microsoft. They've got a lot more money than us."

He also said: "I think that some deal (with Yahoo) would have been nice, but it's probably not possible." However, talk persisted after the February bid was announced that Yahoo was soliciting offers from News to launch an alternative bid -- in part because of a growing enmity between itself and Microsoft, and also because Yahoo had missed the social networking trend.

The Wall Street Journal, also owned by News, reported at the time that talks between the two parties involved combining MySpace with Yahoo, with News reportedly pushing for a valuation of MySpace of between $US6 billion and $US10 billion.

The WSJ reported yesterday direct discussions about a tie-up between Yahoo and News Corp had recently stalled. News had started talking to Microsoft "several weeks ago", with discussions seen as "serious".

A combined takeover of Yahoo by Microsoft and News would create an internet juggernaut with lucrative advertising revenues, combining some of the world's leading brands in areas such as web-based email, social networking and online news services.

The New York Times suggested News might contribute its Fox Interactive Media unit, which includes MySpace, as well as cash to a partnership with Microsoft as part of any Yahoo acquisition. Meanwhile, Yahoo also appears to be preparing itself for a battle against an expanded predator, after repeated assertions that Microsoft's bid for the group is too low.

Analysts believe Yahoo is moving in the direction of a three-way alliance also involving the world's most popular search engine, and biggest internet advertiser, Google.

Yahoo this week announced it was embarking on a two-week test deal involving search advertising with Google. Starting next week, Yahoo will begin outsourcing some of its search ads to Google. This is believed to be the starting point for a larger and more enduring outsourcing arrangement, which could also be used to claim the current bid for Yahoo undervalues it.

Meanwhile, the WSJ has reported the AOL/Yahoo deal currently being considered would partly involve the "repurchase" of a number of Yahoo shares at a price above Microsoft's offer.

There is a belief this plan, combined with the search ads pact with Google, could form Yahoo's defence against Microsoft's takeover bid.