Yahoo!-News Corp. talks: A ploy to get more out of Microsoft? (WSJ, BW, NYT, THR, VAR)

By Nancy Vialatte

Now that Yahoo has rejected Microsoft�s nearly $45 billion buyout offer, News Corp. is once again looking under the search engine�s hood. News of talks comes just after News Corp. chairman Rupert Murdoch said he had no interest in an outright acquisition of Yahoo. Could it be a ploy to get more money out of Microsoft?

Sources say that Murdoch is looking at possibly merging the Fox Interactive Media unit with Yahoo and taking a stake of 20%-25% in the combined entity.

Should the merger occur, News Corp. would take the significant stake aided by a private equity firm. There are conflicting reports as to whether that firm would be Providence.

Fox Interactive Media�s assets include MySpace and IGN.

One of the biggest impediments to the talks is the role Google would play, notes Business Week. Google already has a multiyear, $900 million agreement to handle advertising for MySpace. Any deal that brings Google and Yahoo into the same orbit would undoubtedly raise the hackles of regulators.

Industry observers expressed some reservations about a News Corp./Yahoo deal, given that News Corp. still has to digest the recent acquisition of Dow Jones. Some Wall Street folk see Yahoo's re-engagement with News Corp. as a tactic to draw a higher takeover bid from Microsoft.

And, if a new offer is high enough, Yahoo's board may have a tough time providing a justification for turning it down.

Yahoo also has reached out to Time Warner and its AOL unit, says The Wall Street Journal. People familiar with the situation say the companies remain in contact, but the current sense is that the chances are slim that a deal will emerge.

�It seems like Yahoo�s strategic options are relatively limited,� Mark Mahaney, an analyst with Citigroup, told The New York Times. �It is hard to see a scenario that could create as much value for shareholders as quickly as a Microsoft offer.�

Related Links

Yahoo, News Corp. in Talks (WSJ, sub)
Yahoo Plays the Field with News Corp. (BW)
Little Room for Yahoo to Maneuver (NYT)
News Corp. mulls Yahoo deal (THR)
Yahoo in talks with News Corp. (VAR)