Microsoft Corp and News Corp are in talks about a joint bid for Yahoo Inc that would add MySpace to a proposed Microsoft-Yahoo combination, newspapers reported on Wednesday.
But Yahoo is in talks to merge with Time Warner Inc's AOL unit, a source familiar with the negotiations said, after Yahoo announced on Wednesday a test to use rival Google Inc's Web search service -- a three-way option to try to extract a higher Microsoft bid or even stay independent.
Microsoft has said it will launch a hostile bid for Yahoo and could lower its offer in about three weeks if it does not get a deal from Yahoo, a Web pioneer which argues it is worth more than Microsoft's $42 billion bid.
Any of the combinations, or another yet to be determined, would fundamentally change the Web. Internet and media players have been circling each other for two years waiting for a game of musical chairs to begin in earnest and lead to consolidation.
"The whole situation seems to be very unstable," said Sanford C. Bernstein analyst Jeffrey Lindsay, adding that Microsoft's bid for Yahoo precipitated a cascade of offers.
"There are so many pent-up moves for consolidation but it's hard to say what moves will be successful," Lindsay said.
The talks with News Corp, which previously had discussed working with Yahoo as a counter to Microsoft's unsolicited bid, are at a sensitive stage, the New York Times said. The Wall Street Journal called the talks "serious".
Yahoo's talks with Time Warner are growing closer over a deal that would fold AOL's business, excluding its legacy dial-up Internet access operations, into a combined Yahoo company, a person familiar with the talks said.
Yahoo would receive cash from Time Warner in exchange for 20 percent of a combined Yahoo-AOL, the person said.
Microsoft, News Corp, Time Warner and Yahoo all declined to comment on talks.
Terms of the proposed Microsoft-News Corp union are still being worked out, the New York Times said. News Corp would likely contribute its Fox Interactive Media unit, which owns MySpace, and possibly cash to a partnership with Microsoft as part of a Yahoo acquisition, the newspaper said. (Reuters)
News Corp and Microsoft discuss joint Yahoo bid