Microsoft and News Corp May Make Joint-Bid For Yahoo

It's deal night here at SAI, and it just keeps getting better.

Yahoo and AOL are reportedly on the verge of announcing a surprise merger plan, as part of a brilliant Yahoo counter-attack. And now Andrew Ross Sorkin and Miguel Helft report that Microsoft and News Corp (NWS) are in talks to make a joint bid for Yahoo:

News Corp (NWS) is in talks with Microsoft (MSFT) about joining in its contested bid for Yahoo (YHOO), according to people involved in the discussions. The pairing, which would combine Yahoo (YHOO), Microsoft’s MSN and News Corporation’s MySpace, would create a behemoth that would upend the Internet landscape.

If News Corporation throws its weight behind Microsoft’s offer, it could allow Microsoft to raise its bid, putting even more pressure on Yahoo and its shareholders. At the same time, the alignment of Microsoft and News Corporation would remove a possible alternative for Yahoo, leaving it with fewer opportunities to escape Microsoft’s grasp.

The talks between Microsoft and News Corporation are at a sensitive stage, people involved in the discussions said. “There’s a long way to go before anything is definite,” one person involved in the talks said.

Terms of the proposed union are still being worked out, these people said, and remain murky. News Corporation would probably contribute its Fox Interactive Media unit, which includes MySpace, and possibly cash to a partnership with Microsoft as part of an acquisition of Yahoo, they said.

Would this combination make sense? Why not. Owning MySpace standalone isn't doing Rupert any good--he's getting his clock cleaned by Facebook. MSN, of course, is dead in the water. But throw all that together with Yahoo and you could build a pretty honkinging global communications, social networking, and advertising platform.

Rupert's got some cash, too, which means that the two might be able to pay more without infuriating their own shareholders.

In any event, at this point, you gotta believe Yahoo's stock is going up.

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