News Corp., Yahoo in Talks Over Combination, WSJ Says

News Corp., Yahoo in Talks Over Combination, WSJ Says

Feb. 13 (Bloomberg) -- Yahoo! Inc., seeking to thwart Microsoft Corp.'s $44.6 billion takeover bid, is in talks about a combination with News Corp.'s Internet assets instead, the Wall Street Journal reported.

Rupert Murdoch's News Corp. would get a stake in Yahoo that could be more than 20 percent, the newspaper said on its Web site today, citing people familiar with the matter. The deal would include a cash contribution from News Corp. and a buyout firm.

An agreement would bring together Yahoo, owner of the most- visited U.S. Web site, with News Corp.'s MySpace, the most popular social-networking site. It would allow Yahoo to remain independent, while bolstering News Corp.'s online advertising assets. Yahoo rejected the bid from Microsoft two days ago, saying the offer didn't reflect its value.

``It could make sense in some form,'' David Joyce, an analyst with Miller Tabak & Co. in New York, said in an interview. ``They could gain more access to the overall ad industry on the Web this way.''

News Corp., based in New York, and Sunnyvale, California- based Yahoo have spoken several times in the past 18 months about a combination, the newspaper said.

News Corp. spokeswoman Julie Henderson declined to comment. Yahoo's board is still evaluating all its options, spokeswoman Tracy Schmaler said. She declined to comment on News Corp.

The talks were reported yesterday by the blog TechCrunch, which said the investment by News Corp. and a private equity fund into Yahoo might be $15 billion.

Murdoch's Reversal

A deal with Yahoo would mark a turnaround from Murdoch's previous comments. On a Feb. 4 conference call, he said News Corp. isn't interested in buying Yahoo.

When asked whether he would pursue a combination of MySpace and Yahoo, he said, ``I think that, that has passed, but you never know,'' according to a Bloomberg transcript. He also said it is an ``exaggeration'' to say the two companies had been in talks about such an agreement.

Murdoch bolstered News Corp.'s online assets with acquisitions such as the $580 million purchase of MySpace in 2005 and by partnering with companies including Google Inc., the owner of the most-used Internet search engine.

In the potential Yahoo deal, Murdoch is trying to gain a valuation for MySpace of $6 billion to $10 billion, the Wall Street Journal said.

``The value they can get for MySpace, my guess is, will be much higher than the value ascribed by the market,'' David Bank, an analyst at RBC Capital Markets in New York, said in an interview. ``There's not a lot of downside to News Corp.''

Yang's Baby

Yahoo gained 31 cents to $29.88 at 4 p.m. New York time in Nasdaq Stock Market trading. News Corp.'s Class A shares fell 12 cents to $19.25 in New York Stock Exchange composite trading. Microsoft, the world's largest software maker, rose 62 cents to $28.96 on the Nasdaq.

Microsoft's $31-a-share bid for Yahoo is the company's best chance to challenge Google's dominance in Web search and online advertising, said Colin Gillis, an analyst with Canaccord Adams in New York. Both Yahoo and Microsoft are lagging behind Google, which has increased sales faster and won over consumers and advertisers with its search engine.

With a News Corp. combination, Yahoo Chief Executive Offer and co-founder Jerry Yang would avoid selling the company to Microsoft while still helping it catch up with Google. Yang considers Yahoo his ``baby'' and would prefer not selling outright, Gillis said.

Access to MySpace

Yahoo would also gain access to MySpace at a time when it is losing sales of banner ads to social-networking sites. MySpace and rival Facebook Inc. probably grabbed three-quarters of social-networking ad revenue in 2007, according to New York-based researcher Emarketer Inc.

Yahoo unsuccessfully bid $1 billion to buy Facebook in 2006. The company in September started testing a networking service of its own called Mash that lets users add photos and information about themselves to their pages and accept contributions from friends. Yahoo's older networking service, Yahoo 360, is slated to be phased out or consolidated after it lost users.

Yahoo and News Corp.'s Fox Interactive Media rank as the top two in their share of the market for graphical display ads that can include online banners and billboards, according to researcher ComScore Inc. in Reston, Virginia. Yahoo had 19 percent of the market in November, while Fox had 16 percent. Microsoft had 6.7 percent, ComScore said.

Microsoft Looming

Even with a rival suitor, Microsoft remains the strongest candidate to acquire Yahoo, Gillis said in an interview today.

Microsoft made its cash-and-stock offer on Feb. 1, which Yahoo's board rejected on Feb. 11. The bid, which was 62 percent more than Yahoo's closing price the day before, ``substantially undervalues'' the company, Yahoo's board said.

Yahoo's search for other bidders may be part of a plan to get Redmond, Washington-based Microsoft to raise its price, analysts including Stanford Group Co.'s Clayton Moran said. Microsoft may increase its offer to $40 a share, Gillis said.

``This could be an attempt to use News Corp. as a pawn,'' Michael Nathanson, an analyst at Sanford C. Bernstein & Co. in New York, said in an e-mail.