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Murdoch could save Yahoo! from Microsoft!

You ain't digging into my space, Monkeyboy

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!!!!! Rupert Murdoch is in talks with Yahoo! aimed at fending off the hostile takeover by Microsoft.

Despite repeated denials from News Corp in recent weeks, the two firms are reportedly talking about an alliance based on Murdoch's MySpace. Yahoo! this week officially rejected Microsoft's $44.6bn takeover offer.

The deal would see News Corp exchange MySpace and other web properties for a 20 per cent stake in Yahoo!. It would also bring in private equity money to help Yahoo! develop the combined businesses. Fox Interactive Media, which includes MySpace, turned a profit for the first time in 2007.

A full takeover is unlikely because the company is also still in the process of digesting, and paying for, recent purchases like Dow Jones and The Wall Street Journal. It is not clear how real the deal is and how much it is being used to encourage Microsoft into improving its offer.

In financial terms, Murdoch might be able to play now but could struggle to compete against a likely better offer from Microsoft in the next few weeks.

Murdoch has form on this kind of deal. News Corp subsidiary Sky bought a chunk of ailing UK broadcaster ITV last year. The satellite TV firm didn't need the viewers, but the deal meant it could effectively block Virgin Media buying the broadcaster. Murdoch is not crazy about the idea of either Microsoft or Google moving further into the content market, so following a similar strategy with Yahoo! sounds feasible. UK regulators have since ordered Sky to offload the ITV holding.

Neither Yahoo! nor News Corp have commented on the story, which broke on Silicon Alley Insider.

In other news, Yahoo! is facing a shareholder lawsuit. A pension fund which owns Yahoo! shares is taking the company to court to force it to seriously consider the Microsoft offer. ®

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