Rupert Murdoch's News Corp has jumped into the fight for control of Yahoo, reviving discussions with the internet company about a possible combination that would thwart Microsoft and its $40.69bn takeover offer.
News Corp has been in talks about merging its MySpace social network and other online sites with Yahoo in exchange for a substantial stake in the web portal, according to a person familiar with the matter.
Mr Murdoch last week appeared to take himself out of the running for Yahoo, telling investors that he was "definitely not going to make a bid for Yahoo".
The deal being discussed, however, would fall short of an outright acquisition.
"Yahoo is clearly examining all of its possible options," said Ben Schachter, an internet analyst at UBS. Still, Mr Schachter and other people predicted that Microsoft would do what was needed to prevail, including raising its $31-a-share offer.
Both companies declined to comment yesterday.
The two have talked in the past about merging MySpace and Yahoo.
The idea appears to have been revived since Microsoft made its unwanted bid.
The blogs Silicon Alley Insider and Techcrunch quoted sources saying that the two were "in the middle of marathon discussions".
Any agreement would involve News Corp merging its Fox Interactive Media properties, including MySpace, IGN, Photobucket, Fox Sports and AmericanIdol.com, with Yahoo, Techcrunch said.
News Corp is also understood to have been talking to private equity firms and would join with one in making an investment in Yahoo that would give them a shareholding of more than 20 per cent.
Joining forces with Yahoo and its 500m users would make sense for News Corp by giving it a huge audience for its content along with a much bigger -marketplace for its advertisers.
Any prospective deal could be put to an expected meeting of Yahoo's board later this week.
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