Yahoo, News Corp talks have "cooled": source

NEW YORK Sun May 4, 2008 3:33pm EDT

People leave the News Corporation building in New York, June 26, 2007. REUTERS/Keith Bedford

People leave the News Corporation building in New York, June 26, 2007.

Credit: Reuters/Keith Bedford

NEW YORK (Reuters) - Yahoo Inc's talks with Rupert Murdoch's News Corp on an alternative deal to Microsoft Corp's takeover bid have "cooled" in recent weeks, one source familiar with the matter said on Sunday.

There were no indications that the situation had changed this weekend, after Microsoft abandoned its offer to buy Yahoo for as much as $33 per share, or $47.5 billion.

Microsoft withdrew its offer on Saturday, after balking at Yahoo's request to raise the bid to $37 per share.

The pressure on Yahoo to quickly assemble an alternative solution is high, analysts said, or else the Internet company will likely see its shares plunge on Monday and face a spate of shareholder lawsuits.

The apparent cooling of interest on News Corp's part would narrow the field of options for Yahoo to Time Warner Inc's AOL, which some analysts say is unlikely to appease Yahoo shareholders awaiting a big pay-off akin to Microsoft's offer.

In recent months, Yahoo has held discussions to merge with News Corp's Fox Interactive Media, as well as held separate talks to merge with AOL, sources have said. News Corp had also held discussions with Microsoft for a joint bid to buy Yahoo, the sources have said.

Meanwhile, Yahoo is continuing its talks with Google Inc over a tie-up for Web search listings, one source said on Saturday.

A deal with AOL, which outsources its search advertising to Google, would only increase Yahoo's reliance on Google, analysts said.

"I don't think (a deal with AOL) improves Yahoo's position. It increases dependency on Google," said Jordan Rohan, founder of digital media advisory firm Clearmeadow Partners.

"A Yahoo-AOL merger would have much of the integration hassles of a Microsoft-Yahoo merger, without the payoff to Yahoo shareholders," he said.

(Editing by Maureen Bavdek and Braden Reddall)