There are indications that News Corp. is thinking of a tie-up with Microsoft. If that happens, it will be a blow for Yahoo! whose chief executive, Jerry Yang, had held talks with Rupert Murdoch, but subsequently failed to reach an agreement over a proposed deal, which would have seen Yahoo! get control of MySpace - in return for a stake in the firm. Instead, News Corp. could perhaps line up on the other side of the fence in order to implement its plans for Fox Interactive Media.

Reports indicate that Microsoft is in ‘sensitive’ talks with Murdoch’s News Corp. - the owner of the popular social networking site, MySpace - about a partnership. Most analysts predict that Microsoft will prove irresistible in the long term, for sure, even if it’s forced to pay more for the deal.

We continue to think that a Microsoft-Yahoo! deal is the most likely outcome, and also continue to believe that it’ll happen at a higher price than the original bid

Said Mark Mahaney, the Citigroup analyst.

A combined News Corp-Microsoft bid in all likelihood means a higher bid.

As of now, the Yahoo! board had rejected Microsoft’s original offer, claiming that it was too low.