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With Microsoft Looming, Yahoo Talks To News Corp.

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By MICHAEL LIEDTKE, The Associated Press

Published: February 14, 2008

SAN FRANCISCO - Yahoo Inc. is discussing a possible Internet partnership with media conglomerate News Corp., its latest effort to repel Microsoft Corp.'s takeover bid or pry a better offer from the unsolicited suitor, a person familiar with the situation said Wednesday.

The specifics of the proposed joint venture haven't been worked out, according to the person, who didn't want to be identified because the talks are considered confidential.

Both The Wall Street Journal and a prominent blog, TechCrunch, reported that News Corp. is interested in folding its popular online social network, MySpace.com, and other Internet assets into Yahoo - an idea that first came up last year. News Corp. owns The Wall Street Journal.

News Corp. and a private equity firm reportedly would buy significant stakes in Yahoo as part of a complex deal designed to boost the Sunnyvale-based company's market value above Microsoft's initial bid of $44.6 billion, or $31 per share.

A Yahoo spokesman said the company continues to "carefully and thoroughly" evaluate alternatives that will enrich its long-term shareholders. Yahoo's board reportedly is to meet again today or Friday to consider the company's next move.

News Corp. spokeswoman Teri Everett declined to comment on the Yahoo talks.
Yahoo shares climbed 31 cents to $29.88 Wednesday while Microsoft shares gained 62 cents to $28.96 News Corp. shares slipped 10 cents to finish at $19.93.

Based on Microsoft's current market value, its cash-and-stock bid for Yahoo now stands at $29.50 per share, or about $41 billion.

Yahoo rejected Microsoft's offer Monday, insisting that its Internet franchise is worth more money. Microsoft has held firm so far, calling its original "full and fair" while threatening to launch a hostile takeover attempt.

"What's unclear now is whether Yahoo is just trying to get a higher offer or if the company really doesn't want to sell to Microsoft," said Peter Falvey, a technology investment banker with Revolution Partners.

Although News Corp. Chairman Rupert Murdoch unequivocally said during a conference call last week that his New York-based company isn't interested in an outright acquisition of Yahoo, he didn't rule out the possibility of a deal involving MySpace.

When asked whether he might renew the previous discussions with Yahoo about a MySpace alliance, Murdoch replied: "I think that day has passed, but you never know."

A News Corp. stake in Yahoo might hinge on whether the two sides can agree on how much MySpace is worth.

News Corp., which also owns the Fox television and movies studios in addition to its newspaper and Internet holdings, bought MySpace for $580 million in 2005. But the social network's value has soared as its audience swelled above 100 million users.

Ironically, Murdoch and his lieutenant can point to a recent Microsoft deal to make a case that MySpace is worth more than $15 billion.

Facebook Inc., which owns the Internet's second largest social network behind MySpace, now arguably has a $15 billion market value, based on Microsoft's purchase late last year of a 1.6 percent stake for $240 million.

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