Rupert Murdoch’s News Corporation is in talks with Microsoft about joining in its contested bid for Yahoo, according to people involved in the discussions. The combination, which would join Yahoo, Microsoft’s MSN and News Corporation’s MySpace, would create a behemoth that would upend the Internet landscape.

The talks are a surprising twist in the two-month-long takeover story that began when Microsoft made a $44.6 billion bid for Yahoo.

Yahoo has resisted Microsoft’s overtures, contending that it will not negotiate unless Microsoft raises its offer. Yahoo, which wants to remain independent, has been in a desperate search for white knights, holding conversations with Time Warner’s AOL and News Corporation.

If News Corporation throws its weight behind Microsoft’s offer, which could allow Microsoft to raise its bid, putting even more pressure on Yahoo and its shareholders. At the same time, the alignment of Microsoft and News Corporation would remove a possible alternative for Yahoo, leaving it with fewer opportunities to escape Microsoft’s grasp. The talks between Microsoft and News Corporation are at a sensitive stage, people involved in the discussions said. “There’s a long way to go before anything is definite,” one person involved in the talks said.

A Microsoft spokesman said he could not immediately comment. A spokesman for Yahoo declined to comment. A News Corporation spokesman said the company did not comment on “speculation”.

It is also possible that News Corporation could still participate in a deal with Yahoo on its own, though the disclosure of its talks with Microsoft may complicate that relationship.

... contd.