• Marketwatch, Monday, March 3, 2008 11 AM

A Microsoft-Yahoo takeover still looks inevitable, but the News Corp.-Yahoo rumors refuse to die. On Thursday RBC Capital markets analyst David Bank said Rupert Murdoch and co. could come out ahead in a bid for Yahoo because a deal "offers little downside to News Corp."

Here's how the deal would work: News Corp. would combine Yahoo with Fox Interactive Media, its Internet division that includes MySpace, and then join forces with a private equity firm to purchase a 20 percent ownership stake in the combined company.

This scenario has been widely reported, but reviews have been mixed. Some analysts claim Yahoo shareholders would never approve of such a deal because the Microsoft bid of $40 billion creates far more value for them. Even Bank says, "We're skeptical Yahoo shareholders will ultimately be swayed to choose a Yahoo/MySpace combination." But he notes its potential upside: the move would give Yahoo immediate access to the social networking market, an area where Yahoo has lagged. It would also be a huge boost for News Corp, Bank says, adding that it would take a decline of about 64% in News Corp.'s 20 percent stake in the alliance "to generate effective value loss."

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