From the WSJ:
News Corp. Enters Yahoo Fray
By JESSICA E. VASCELLARO
February 13, 2008 3:12 p.m.
News Corp. and Yahoo Inc. are in discussions about combining MySpace and other News Corp.-owned online properties with Yahoo, according to people familiar with the matter.
The discussions are aimed at helping Yahoo fend off Microsoft Corp's unsolicited takeover offer, which was initially valued at $44.6 billion. Under the deal being discussed, News Corp. would get a stake in Yahoo which could be more than 20%.
The deal under discussion, which would also include a contribution of cash from News Corp. and a private equity firm, is a variation of one that has been considered by the two companies several times over the past 18 months.
But discussions have previously fallen apart in disagreements over MySpace's valuation, which affects the size of the stake News Corp. would get in Yahoo. News Corp., whose other properties include the Wall Street Journal, is likely to push for MySpace to be valued at between $6 billion and $10 billion, according to people familiar with the matter. Reports of the talks have appeared on Web sites including TechCrunch and Silicon Alley Insider in the past couple of days.
The deal would allow Yahoo to remain independent while giving News Corp. substantial control over a huge array of Internet properties and advertising opportunities.
A sale to Microsoft still appears to the most likely scenario for Yahoo. Microsoft is likely to be willing to increase its offer. The company has said it is willing to "pursue all necessary steps" to consummate the deal, which could mean going directly to shareholders.
But Yahoo has been aggressively seeking alternatives. News Corp. has been reaching out to private equity firms since the day Microsoft's bid was first announced, according to one person familiar with the matter. The company had been originally reluctant to press forward with a deal until waiting for a sign from the Yahoo board that they were interested, according to another person. Yahoo on Monday refused Microsoft's offer on the grounds that it "substantially undervalues" the company, leaving the door open for new entrants.
On a recent earnings call, News Corp. Chairman Rupert Murdoch ruled out that the company would bid for all of Yahoo. Regarding a potential swap of MySpace for a stake in Yahoo, he said: "I think that day has passed but you never know."