Can Rupert Murdoch ride in as Yahoo's white knight?

Peter Kafka in Silicon Alley Insider says that Yahoo and Murdoch's News Corp. have been discussing some sort of a deal, short of an acquisition, to "create an alternative" to a unwelcome takeover by Microsoft.

Michael Arrington on TechCrunch has confirmed that there are talks.

The idea under discussion, he says, is a deal that would put Fox Interactive Media, which includes MySpace into Yahoo, along with a cash investment by News Corp. and a private equity fund.

The result would be a stronger Yahoo, with a value of $50 billion, above Microsoft's initial offer of $44.6 billion. News Corp. would get a stake of more than 20 percent in the new Yahoo.

News Corp. would be "effectively in control of the combined Yahoo/Fox Interactive Media entity and their nearly 150 billion monthly page views (which would be second only to Google)," TechCrunch says.

The companies have discussed variations of such a deal several times over the last 18 months, Jessica Vascellaro of the Wall Street Journal reports.  "But discussions have previously fallen apart amid disagreements over MySpace's valuation, which affects the size of the stake News Corp. would get in Yahoo," she says.
 
Another big hurdle, according to TechCrunch, is that with an alliance with News Corp, Yahoo would still need to outsource search marketing to Google to make a deal financially viable.

And Google's enthusiasm for such an alliance has waned in recent days, reports Kevin Delaney of the Wall Street Journal, because of the likely opposition from regulators.

See Portfolio.com's full coverage of the Microsoft-Yahoo merger.