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News Corp., partner may buy 20% of Yahoo

The Baltimore Sun

SAN FRANCISCO -- A week after saying he wouldn't get into a bidding war for Yahoo Inc., Rupert Murdoch is emerging as a potential white knight for the Internet company as it tries to fend off Microsoft Corp.'s unsolicited takeover bid, according to people familiar with the talks.

Murdoch's News Corp. is working on an offer to merge its Internet business, which includes social-networking site MySpace, with Yahoo in exchange for a major stake in the company, according to people who have been briefed on the discussions.

Yahoo's board was meeting yesterday to discuss News Corp. and other options, a person close to Yahoo management said.

Yahoo rejected Microsoft's $44.6 billion offer as too low, and Microsoft has signaled it would consider taking the bid directly to shareholders through a proxy fight. Analysts expect Microsoft to raise its half-cash, half-stock offer of $31 a share.

The talks with News Corp. began shortly after the takeover bid was announced Feb. 1. Under the plan being discussed, Yahoo chief executive Jerry Yang and President Sue Decker would run the combined company, which would include Yahoo, MySpace and other Web properties owned by News Corp.'s Fox Interactive Media, a person familiar with the discussions said.

Yahoo also would receive a cash infusion from a private equity fund, whose identity could not be confirmed yesterday. One source said Providence Capital, which invested in News Corp.'s and NBC Universal's online video joint venture, Hulu, was a likely candidate.

Yahoo and News Corp. declined to comment. Providence Capital could not be reached immediately.

"The Yahoo board is carefully evaluating all of the company's strategic alternatives and will pursue the best course of action to maximize long-term value for stockholders," said Tracy Schmaler, a Yahoo spokeswoman.

The News Corp. talks were first reported this week by blogs, including Silicon Valley Insider and TechCrunch.

"I wouldn't doubt they are having discussions, but I am not sure it amounts to an alternative that's as attractive to Yahoo shareholders as even the existing Microsoft bid, and certainly not a sweetened bid," said Clayton Moran, an analyst with Stanford Group Co.

Moran said MySpace's advertising partnership with Yahoo rival Google Inc. would be a "complicating" factor to such a deal.

TechCrunch placed the total investment at about $15 billion, which would value Yahoo at about $50 billion before the transaction.

News Corp. and the private equity fund would get more than 20 percent of the combined company, making them the largest single stockholder.

Jessica Guynn writes for the Los Angeles Times. Times staff writer Dawn C. Chmielewski contributed to this report.

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