Yahoo! and Time Warner's AOL are close to inking a deal to combine their internet operations to thwart Microsoft's takeover bid even as the software giant is joining forces with Rupert Murdoch's News Corp for a joint bid, reports said.
The possible Yahoo!-AOL (America Online) tie-up is part of Yahoo!'s plan to present its shareholders with an alternative to Microsoft's unsolicited offer. Under the terms being discussed, Time Warner will merge its AOL unit with Yahoo! and make a cash investment in return for about 20 per cent equity in the combined entity.
Yahoo! would then use that cash and more funds to buy back several billion dollars worth of its own stock at a price somewhere in the $30-$40 a share range, The Wall Street Journal said, quoting sources familiar with the situation.
Yahoo! is also negotiating with a Google bout an advertising tie-up.
The benefit for Time Warner is that AOL has been struggling for many years for want of a viable strategy. It has lost most of its value since it combined with Time Warner in 2000.
For its part, Microsoft, which threatened Saturday last to take its offer directly to shareholders via a proxy fight, is in talks with Murdoch's media group about mounting a joint bid for Yahoo!
The two have yet to reach an agreement on joining forces, but their discussions are described as serious. If they succeed, they would be able to combine three of the biggest Internet properties: News Corp.'s MySpace, Microsoft's MSN and Yahoo!
Yahoo! had earlier spoken to New Corp for a tie-up to prevent acquisition by Microsoft.
Microsoft has offered Yahoo! shareholders a combination of cash and Microsoft shares currently valued at $42 billion, or $29.24 a share.
Microsoft wants to combine with Yahoo to better challenge with Google.