By Andrew Clark in New York

Feb 13, Guardian


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. Mr Murdoch's media empire would jointly invest $15bn 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.

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