• Reuters, Thursday, February 14, 2008 10:45 AM

Analysts have responded skeptically to yesterday's news that Yahoo is exploring a possible deal with News Corp. in lieu of Microsoft's bid for the company, which is now valued at $42.1 billion. Under the proposed deal, News Corp.'s Fox Interactive Media division become part of Yahoo and the media giant would pay around $9 billion in exchange for a 20 percent equity stake in the combined company, split between News Corp. and an unnamed private equity fund. The deal would make News Corp. Yahoo's majority shareholder.

An interesting and unexpected proposal, but analyst Sanford C. Bernstein analyst Jeffrey Lindsay believes that, "Any options other than Microsoft are all ... fraught with serious consequences." He adds "the management ... have basically backed themselves in the corner."

An FIM-Yahoo merger would also erase the boost Yahoo's stock received the day Microsoft offered $31 per share for the company. Yahoo shares had been trading below $20 the day before and would probably settle out at $15.

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