Analysts doubt = Yahoo-News Corp. talks will stop Microsoft

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, , ) = to combine=20 the Internet company with MySpace and other Fox Interactive Media = properties --=20 didn't make sense. And some believe the rumored negotiations are just = part of=20 Yahoo's efforts to pressure Microsoft into raising its bid price.

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The potential alliance got much attention Wednesday when = two=20 technology blogs and the Wall Street Journal, citing unnamed sources, = reported=20 that Yahoo and News Corp. were discussing such a partnership. See=20 full story.

News Corp. CEO Rupert Murdoch has previously said that = the company=20 is not interested in bidding for Yahoo. News Corp. and Yahoo both = declined to=20 comment Wednesday. News Corp. is the owner of MarketWatch, publisher of = this=20 report.

Doug Creutz of Cowen and Company said the reported = alliance would=20 be a bad match. "On its face, the terms of the deal do not make a lot of = sense=20 from News Corp.'s perspective," he said in a research note.

According to the Wall Street Journal, the reported deal = would give=20 News Corp. a 20% stake in Yahoo.

But Creutz said News Corp. "would be ill-served by = trading one of=20 its most valuable growth assets for a non-controlling stake in a = struggling=20 company. In our view, adding Fox Interactive Media would not fix Yahoo's = underlying business problems."

Benjamin Schachter of UBS said that while Fox Interactive = Media=20 would give Yahoo access to more Internet traffic, the Internet company's = main=20 problem has been "its poor execution on optimizing monetization."

Another Cowen analyst, Jim Friedland, suggested that the = talk about=20 Yahoo talking to other potential partners, including Google Inc. (GOOG:

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"We view Yahoo's negotiations with Google, media = conglomerates,=20 which still have vivid memories of the disastrous AOL/Time Warner = merger, and=20 private equity players as a way for the [Yahoo] board to force Microsoft = to pay=20 more," he said in a research note. "After all, the board has a fiduciary = responsibility to maximize shareholder value."

Youssef Squali of Jefferies & Company expressed a = similar view=20 saying, "Entertaining discussions with Google, News Corp and private = equity=20 firms is part of the negotiations that are likely to get Yahoo a higher = bid."=20

But he said Yahoo's board could be "running the risk of = derailing a=20 deal at the end of the day can prove dangerous to shareholders, = considering that=20 a 'no deal' scenario would send the stock back below $20 quickly." =

Yahoo's stock has risen more than 50% since Microsoft = unveiled its=20 merger bid.

'Interesting allience'

Analyst Crawford Del Prete of International Data Corp. = said a=20 Yahoo-MySpace combination "would be an interesting alliance" that could = turn=20 into a "great marriage of classic media with 'new media' and would = significantly=20 strengthen the position of Yahoo."

"Probably the most complicated part would be finding the = leverage=20 with MySpace,' he said. "It would be very important to maintain or = accelerate=20 the value of MySpace as a result of this kind of alliance, and not = dilute it as=20 a result of a Yahoo affiliation."

The reported alliance would also fit into the emergence = of social=20 networking as one of the hot trends in the Internet industry, he added. = This was=20 underscored recently when Microsoft invested $240 million to nab a 1.6% = stake in=20 Facebook.

"Some consider social networking 'the new e-mail'," Del = Prete said.=20 "While we consider this an overstatement, it speaks to the way the some=20 consumers are using it as a tool. To contact friends, to convey = presence, and to=20 meet new people."

But analyst Roger Kay of Endpoint Technologies Associates = said=20 social networking companies, while popular, have yet to figure out how = to cash=20 in on their traffic, and it's unclear how a Yahoo-MySpace marriage would = solve=20 the struggling Internet behemoth's problems.

"The business model for that stuff is kind of unproven," = he said=20 "You have Yahoo that is a struggling property and now, you're going to = put it=20 together with a property that is unproven financially."

Haim Mendelson, a professor at the Stanford Graduate = School of=20 Business, echoed this point saying Yahoo's social networking efforts = could=20 benefit technologically from an alliance with MySpace. But he added, "I = don't=20 see how the equity structure would work."

He said the Yahoo board may be finding ways to escape = Microsoft's=20 bear hug, but, "Realistically, from my broad assessment, Microsoft is = hard to=20 stop at this point."

Schachter agreed saying he believes the software giant = "will do=20 what is necessary to get the deal done, and we don't believe its first = offer was=20 it final offer." 3D"End

Benjamin Pimentel is a MarketWatch = reporter=20 based in San Francisco.

Companies in this story

	Yahoo!=20 Inc (YHOO= )
	News=20 Corp (NWS)<= /TD>
	Google=20 Inc (GOOG= )
	Microsoft=20 Corporation (MSFT= )

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Analysts doubt Yahoo-News Corp. talks will stop Microsoft -=20 MarketWatch