Duo meet on possible joint venture

Microsoft has a new competitor for Yahoo’s affections: Rupert Murdoch.

The Netco is talking to News Corp. about a potential deal that would merge Yahoo with News Corp.’s Web assets like MySpace and IGN, according to a person familiar with the situation. In return, News Corp. and a private equity firm — reported to be Providence Capital — would buy a significant stake in Yahoo.

A News Corp. spokesman declined to comment.

A Yahoo spokesman would say only that the company is “carefully and thoroughly” evaluating alternatives.

Transaction could boost Yahoo’s stock above the $31 per share that Microsoft offered two weeks ago and Yahoo’s board rejected as too low on Monday. The Wall Street Journal reported that the deal under discussion would give News Corp. a stake of over 20% in Yahoo.

That would leave Yahoo as an independent company while giving News Corp. access to its online advertising business, which would become a strong No. 2 behind Google.

Deal could cause complications, however, in News Corp.’s multiyear search partnership with Google.

Talk appears to contradict a statement made by Murdoch just last week, when he said during an earnings call that his company wouldn’t make a bid for Yahoo, either alone or with a partner.

It’s widely believed on Wall Street, however, that Microsoft will increase its bid. If the new offer is high enough, Yahoo’s board may have a tough time providing a justification for turning it down, no matter how much they would rather remain independent.

Separately, News Corp. announced Wednesday that it is launching an incubator for Web businesses, called Slingshot, headed by former MySpace execs Josh Berman and Colin Digiaro.

(The Associated Press contributed to this report.)

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