Rupert Murdoch’s News Corporation is negotiating to rescue the embattled internet company Yahoo through an alliance that could set up a heavyweight business showdown between the Australian-born media mogul and Microsoft’s Bill Gates.
News Corp has begun tentative talks about merging its online division, which includes the social networking site MySpace, with Yahoo to create a powerful combined presence on the internet.
The tie-up would provide a handy escape route for Yahoo, the world’s most popular web portal, which is searching for a way to avoid succumbing to a $44bn (£22.4bn) hostile takeover bid from Microsoft. But it would infuriate Microsoft, which is anxious to get its hands on Yahoo to bolster its flagging internet offering and to create a viable rival to the web search leader Google.
Yahoo’s management is likely to be drawn towards a deal with News Corp because it would allow the internet firm to remain largely independent. Murdoch’s media empire would jointly invest $15bn (£7.7bn) alongside a private equity firm and would end up with a 20% stake in Yahoo according to details obtained by Techcrunch, an influential Silicon Valley blog.
If the talks progress, Murdoch would be pitched into a head-to-head battle with Gates, who remains chairman of Microsoft although he spends much of his time distributing his $56bn fortune through healthcare projects in developing countries.
Analysts said it could turn into one of the biggest takeover battles seen in the technology industry. "The entertainment value for all of us would be like nothing we’ve seen since the days of AOL and Time Warner – and it might even exceed that," said Michael Gartenberg, an analyst at Jupiter Research in New York.
Neither News Corp nor Yahoo would comment last night, although the negotiations were reported on the website of the Wall Street Journal, which is owned by News Corp.
Yahoo’s founder, Jerry Yang, is under intense pressure from shareholders over his refusal to accept a Microsoft takeover. A Michigan public pension fund which owns 13,600 Yahoo shares yesterday sued the company for failing to consider the $31-a-share bid properly. A lawyer for the fund, David Fink, said: "Just saying no is not an appropriate response."
At the very least, News Corp’s interest will give breathing space to Yang. It could put a value on Yahoo of as much as $50bn, allowing the internet company to argue that it is a better proposition than Microsoft’s bid. This, in turn, would put the onus on Microsoft to offer more money.
But a deal with News Corp faces several hurdles. It would not involve an immediate payout to shareholders who may be impatient for cash.
"It’s not something Yahoo shareholders could trade on immediately," said Gartenberg. "Even if it has the potential to deliver a higher valuation, it’s not the same thing as someone offering $31 a share."
News Corp, which owns newspapers including the Times and the Sun, has a range of websites in its online division including the movie review site Rotten Tomatoes, the image-sharing venture Photobucket and the men’s magazine Askmen.com.
A combination would do little to tackle Yahoo’s main weakness – the fact that it has been steadily losing ground to Google in lucrative internet searches which bring in millions of pounds from online advertisers.
Some reports last night suggested that in order to make a tie-up with News Corp work, Yahoo would need to surrender the search battle by contracting out its search technology to Google. Such an arrangement could fall foul of competition regulators as it would enhance Google’s already overwhelming dominance in trawling the internet.
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