Microsoft, News Corp Discuss Combined Offer for Yahoo!

In a surprising development, Microsoft and News Corp. are holding talks to discuss a combined offer for Yahoo!, according to separate reports in "The New York Times" and "The Wall Street Journal." The combination would join Microsoft's MSN and Live properties, News Corp's MySpace, and Yahoo! into an Internet giant that could more effectively compete with Google.

But that's where things get complicated: Yahoo! has renewed talks with Time Warner's AOL unit in a last-ditch bid to stave off Microsoft's advances. The two companies are now discussing a more lucrative deal in which AOL would be made part of Yahoo!, Time Warner would purchase 20 percent of Yahoo! at a higher stock price than that offered by Microsoft, and Yahoo! would outsource its search ad sales to Google.

So how's this all going to play out? Most analysts still feel that Microsoft will ultimately get Yahoo!, but renewed talks between Yahoo! and Time Warner could at least raise the asking price. Of course, at that point, it's unclear whether struggling Yahoo! is worth the $44.6 billion Microsoft originally offered, let alone more. Regardless, today's revelations are just that and change the dynamics of Yahoo!'s future.

Also, while News Corp's entry into this battle isn't new, the role its taking is much larger than many had previously understood. For example, it's well understood that Yahoo! began talking to News Corp, among others, in the wake of Microsoft's unsolicited takeover bid. But after those talks broke down, News Corp began talking to Microsoft about a combined bid, and apparently Yahoo! was privy to, or even part of, these discussions.