Time Warner talks to thwart Microsoft bid?

Yahoo! and Time Warner have held talks on a deal designed to thwart Microsoft's bid for Yahoo!, according to a report in The Wall Street Journal.

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Under a possible deal, Yahoo! would acquire Time Warner's AOL in exchange for Time taking a large minority stake in the combined company, according to unidentified sources familiar with the matter. The companies could save $1bn per year, the sources said. The companies held talks earlier but talks heated up after Yahoo! approached Time Warner again about a proposal to take to its board.

Meanwhile, Yahoo! and News Corp continue to talk as well, discussing a deal under which News Corp would sell MySpace to Yahoo! in exchange for a stake in the company, the report said.

Yahoo! has rejected Microsoft's bid, saying it undervalues the company. The $31 a share price at the time the bid is now worth $28.62 because of a drop in Microsoft's share price. Microsoft is expected to propose its own candidates for Yahoo!'s board and has until 14 March to do so but Yahoo! could try to push the deadline back, the sources said. If the deadline doesn't change, Yahoo! and Microsoft could hold discussions this weekend and avoid leaks affecting their stock prices, a source said.

Microsoft has recruited Alan Schwartz, chief executive of Bear Stearns, to help work out a strategy on the bid, along with Morgan Stanley and Blackstone Group.

Original article: Yahoo, Time Warner reportedly talk deal to thwart Microsoft from CNET News.com