MySpace could merge with Yahoo! to scupper Microsoft’s takeover bid

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The News Corporation chairman is in talks over merging his MySpace social networking site and other online businesses with Yahoo! to help the firm beat off Microsoft's approach, the Wall Street Journal reported.

Microsoft wants to buy Yahoo! to offer a greater challenge to Google's online dominance, with News Corporation also said to be keen on a deal with Yahoo! for the same reason.

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Muscling in: Rupert Murdoch is interested in merging his MySpace site and other online businesses with Yahoo! to beat off Microsoft's approach

Yahoo! rejected Microsoft's initial $44.6 billion (£22.6bn) approach on Monday.

News Corporation - which was unavailable for comment - and an unnamed private equity firm would pump cash into Yahoo! in return for a stake of more than 20 per cent of the business, according to the report.

The plans could put News Corporation's weight behind Yahoo! - offering a platform to distribute its news as well as thwarting Microsoft's growth plans.

A tie-up would represent the latest expansion of Mr Murdoch's media empire following his $5bn (£2.37bn) acquisition of Wall Street Journal publisher Dow Jones last year. He bought MySpace for $580 million (£294.2) in 2005.

MySpace: Media king Rupert Murdoch wants to combine his social networking site with Yahoo!

Yahoo! has already rejected Microsoft's £22billion takeover bid, saying it "substantially undervalued" the company.

Microsoft made the surprise offer for the internet search engine ten days ago.

The Yahoo! board concluded the £15-per-share proposal was not in the best interests of its shareholders.

It said the bid "substantially undervalues" Yahoo!'s global strength.

Some Wall Street analysts believe the rejection of the initial offer is an attempt to get Microsoft to raise its bid.

Analysts said Microsoft could be persuaded to increase its offer to as much as £20 a share.

However, Yahoo! is understood to have restarted merger talks with AOL as a means of defending itself against Microsoft's hostile approach.