Murdoch may rescue Yahoo

SAN FRANCISCO — A week after saying he wouldn't get into a bidding war for Yahoo, Rupert Murdoch is emerging as a potential white knight for the Internet company as it tries to fend off Microsoft's unsolicited takeover bid, according to people familiar with the talks.

Murdoch's News Corp. is working on an offer to merge its Internet business, which includes social-networking site MySpace, with Yahoo in exchange for a major stake in the company, people who have been briefed on the discussions said.

Yahoo's board was meeting Wednesday to discuss News Corp. and other options, a person close to management said.

Yahoo on Monday rejected Microsoft's $44.6 billion offer as too low. Microsoft has signaled it would consider going directly to shareholders through a proxy fight. Analysts expect it to raise its half-cash, half-stock offer of $31 a share.

The talks with News Corp. began shortly after Microsoft's bid was announced Feb. 1. Under the plan being discussed, Yahoo Chief Executive Jerry Yang and President Sue Decker would run the combined company, which would include Yahoo, MySpace and other Web properties owned by News Corp.'s Fox Interactive Media, a person familiar with the discussions said.

Yahoo also would receive a cash infusion from a private-equity fund, whose identity could not be confirmed Wednesday. One source said a likely candidate was Providence Capital, which invested in Hulu, an online joint venture of News Corp. and NBC Universal.

Yahoo and News Corp. declined to comment. Providence Capital could not be immediately reached.

"The Yahoo board is carefully evaluating all of the company's strategic alternatives and will pursue the best course of action to maximize long-term value for stockholders," spokeswoman Tracy Schmaler said.

In the days after the Microsoft bid, News Corp. said it was not interested in competing to buy Yahoo. Now Yahoo and News Corp. are trying to rush a deal to the table. The talks were first reported this week by blogs, including Silicon Valley Insider and TechCrunch.

"I wouldn't doubt they are having discussions, but I am not sure it amounts to an alternative that's as attractive to Yahoo shareholders as even the existing Microsoft bid, and certainly not a sweetened bid," Stanford Group analyst Clayton Moran said.

He said MySpace's ad partnership with Yahoo rival Google would be a "complicating" factor to such a deal.

TechCrunch placed the total investment at about $15 billion, which would value Yahoo at about $50 billion before the transaction. News Corp. and the private-equity fund would get more than 20 percent of the combined company, making them the largest single stockholder.

Wall Street isn't giving much credence to this or other alternatives explored by Yahoo's board, such as a merger with Time Warner's AOL.

Shareholders — particularly speculators who have jumped into the stock since the bid was announced — are anticipating a $36-a-share payout in cash and Microsoft stock. They also have grown disenchanted with Yang's leadership.

Yahoo's other option, an alliance with Google in Web searching, seems to be a fading possibility. Analysts had encouraged Yahoo to farm out its search business to Google, but such a deal would likely face tough antitrust scrutiny.

Microsoft said Monday it was determined to acquire Yahoo by whatever means necessary, and that its offer was "full and fair."

Los Angeles Times reporter Dawn C. Chmielewski contributed to this story.