News Corp and AOL vie for Yahoo! takeover stake - Rumour

Thu Apr 10 2008, 14:28 PM

Microsoft is in talks with News Corp about joining its bid for internet giant Yahoo!, reports The New York Times. The talks come at the same time as separate reports claim Yahoo! is nearing agreement with AOL, in a deal that would block Microsoft's takeover attempts.

Deal Details

In a surprise move, News Corp is in discussions with Microsoft and is at a "sensitive stage" of talks says the NY Times, which cites sources involved in the discussions. One source reportedly says: "There’s a long way to go before anything is definite".

However, a deal is close to being agreed in which AOL would merge into Yahoo!. Under this agreement AOL would pay Yahoo! for a 20% stake in the merged entity, claims a counter report in The Wall Street Journal citing people familiar with the matter. Yahoo! would reportedly use the funds to buy back stock from shareholders who may be set to back Microsoft's offer.

A tie-up with News Corp could allow Microsoft to increase its offer price of USD44.6bn, which Yahoo! has refused saying it undervalues the company. However, this would be a reversal of last week's ultimatum by Microsoft CEO Steve Ballmer, who told Yahoo! that its offer was generous and that Yahoo! has three weeks to begin bargaining in good faith or face a hostile takeover.

A union between News Corp and Microsoft is likely to involve Fox Interactive Media - the online News Corp division that owns MySpace. Combining this with Yahoo! and Microsoft's online properties would form a hugely influential merged online entity. News Corp was first rumoured to be in talks with Yahoo! on its own right soon after Microsoft tabled its USD44.6bn offer in Jan, but was subsequently thought to have dropped out of the race.

News of both News Corp and AOL's involvement in talks also comes as Yahoo! is negotiating to temporarily give some of its advertising space to Google. A test, which could last up to two weeks, may lead to an eventual partnership between the companies. This would offer a third option to Yahoo!, boosting profitability and retaining its independence through outsourcing its ad-unit to Google.