News.blog: Yahoo, Time Warner talk partnership

Yahoo and Time Warner have held talks on a deal designed to thwart Microsoft's bid for Yahoo, according to a report in The Wall Street Journal.

Under a possible deal, Yahoo would acquire Time Warner's AOL in exchange for Time taking a large minority stake in the combined company, according to unidentified sources familiar with the matter. The companies could save $1bn (£500m) a year, the sources said. The companies held talks earlier but talks heated up again after Yahoo re-approached Time Warner about a proposal to take to its board.

Meanwhile, Yahoo and News Corp continue to talk as well, discussing a deal under which News Corp would sell MySpace to Yahoo in exchange for a stake in the company, the report said.

Yahoo has rejected the bid, saying it undervalues the company. The $31 a share price at the time the bid is now worth $28.62 because of a drop in Microsoft's share price. Microsoft is expected to propose its own candidates for Yahoo's board and has until 14 March to do so, but Yahoo could try to push the deadline back, the sources said. If the deadline doesn't change, Yahoo and Microsoft could hold discussion this weekend and avoid leaks affecting their stock prices, a source said.

Microsoft has recruited Alan Schwartz, chief executive of Bear Stearns, to help figure out strategy on the bid, along with Morgan Stanley and Blackstone Group.

The sources told the newspaper that Microsoft will likely end up purchasing Yahoo despite the Time Warner and News Corp talks.