Yahoo In Talks With Time Warner, While Microsoft Chats With News Corp.Yahoo In Talks With Time Warner, While Microsoft Chats With News Corp.

The latest chapter in Yahoo's eventual fate: Microsoft is talking to News Corp. about jointly bidding for Yahoo, while Yahoo is working on a deal to merge its Internet operations with AOL and outsource some of its search advertising business to Google.By joining forces with News Corp., Microsoft would be able to up its offer for Yahoo, which is what Yahoo indicated it required in a message Monday to Microsoft CEO Steve Ballmer. A Microsoft-News Corp.-Yahoo combination "would create a behemoth that would upend the Internet landscape," reports The New York Times.

Meanwhile, should a deal with AOL parent Time Warner come to pass, AOL would be folded into Yahoo; Time Warner would make a cash investment in return for 20 percent of the combined entity. As far as Google goes, Yahoo is running a two-week test to see whether it can extract more revenue if Google runs its search advertising system. If the answers turns out to be yes, that would further underscore Yahoo's assertion that Microsoft's bid was too low.

Of course, it'll all come down to what Yahoo's shareholders want. "Even if it reaches an agreement with AOL, Yahoo may have difficulty persuading its shareholders that the combination is more attractive than Microsoft's original proposal, which offers a more certain short-term financial return," writes The Wall Street Journal.The New York Times, The Wall Street Journal