Microsoft May Team with News Corp. in Yahoo Deal

Microsoft may be changing its Yahoo takeover strategy by teaming with News Corp. to make a joint bid for the Internet search and advertising company. Sources close to the discussion claim that while Microsoft and News Corp. have not yet struck a deal, the two companies are engaged in serious discussions, according to The Wall Street Journal.

If Microsoft and News Corp. were to reach an agreement and then take over Yahoo, the deal would combine MSN from Microsoft, MySpace from News Corp, and Yahoo.

Microsoft originally proposed buying out Yahoo for US$44.6 billion at the beginning of February, but Yahoo rejected the offer. After several weeks of apparent inactivity, the Redmond-based company gave Yahoo an ultimatum last Saturday: Strike a deal within three weeks, or face a hostile takeover.

A hostile take over attempt, however, may be more difficult to pull off than Microsoft anticipates. Yahoo is still negotiating to acquire AOL, which would give Time Warner a stake in the combined company and potentially stall Microsoftis buyout efforts.

Yahoo is also testing Googleis AdSense for Search service to see if its competitoris technology can help boost advertising revenue. Some analysts expect that if Yahoo outsourced all of its online search advertising to Google, the company could see upwards of a 25 percent increase in cash flow.

Despite Yahoois potential alternatives, Microsoft still insists that its deal makes the most sense. "Our proposal remains the only alternative put forward that offers Yahoo shareholders full and fair value for their shares," the company said.