New York, April 10: 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.

Terms of the proposed union are still being worked out, these people said, and remain murky. News Corporation would probably contribute its Fox Interactive Media unit, which includes MySpace, and possibly cash to a partnership with Microsoft as part of an acquisition of Yahoo, they said.

The talks represent a change of sides for Murdoch. Just days after Microsoft made its bid, he flew to the West Coast and had dinner with Jerry Yang, Yahoo’s chief executive, offering his assistance in fending off Microsoft.

A deal between them would have involved joining forces with Google to use its lucrative advertising system on the companies’ sites. Antitrust concerns have, however, all but scuttled those talks, at least in that form.

On Wednesday, Yahoo suggested that it might be willing to cede part of its core business to Google, an archrival, to remain independent.

Yahoo said it would begin outsourcing a small portion of its search advertising to Google. The limited test is meant to determine whether the company could extract more revenue if Google ran its search advertising system. The test results might also back Yahoo’s contention that Microsoft’s offer undervalues the company, a person briefed on the plan said.

In the two-week test, Yahoo will use Google’s search advertising system to deliver ads that appear alongside Yahoo’s search results. The test will involve searches conducted in the US on Yahoo.com, not on any of the company’s search affiliates, and will be limited to no more than 3 per cent of all search queries, Yahoo said in a statement. Yahoo also said there was no guarantee that the test would lead to a broader deal.

Microsoft immediately blasted the idea of a search advertising partnership between Yahoo and Google, saying it would be anticompetitive.

editor@expressindia.com