AOL in talks with Yahoo!

AOL and Yahoo! Were today said to have held talks as the search engine considers potential deals to help it evade the clutches of Microsoft.

Advisers from Time Warner-owned AOL met with representatives of search engine Yahoo! To see if a deal is workable, the Sunday Telegraph reported.

The talks with internet firm AOL come after Yahoo!’s rejection last week of Microsoft’s offer to buy the company for $42bn (€28bn).

Among the other suitors for Yahoo!, Rupert Murdoch’s News Corporation is thought to have offered to buy a 20% stake in Yahoo! in a deal that would see Yahoo! swap shares for a clutch of online assets, including social networking site MySpace. Mr Murdoch has ruled out making a full bid.

Details of the discussions involving AOL and Yahoo! remain unclear, although a potential sticking point could be Google’s small stake in AOL. Anti-trust laws would make any deal involving Google and either AOL or NewsCorp difficult, today’s newspaper report said.

Microsoft’s approach came a year after the two companies held talks over a possible tie-up to challenge Google, although Yahoo! rejected the proposals at the time because it hoped to reap benefits from an overhaul of the business.

But Microsoft warned on unveiling its offer that the competitive situation had not improved and that it believed a merger was the “only alternative” to challenging Google’s dominance.

The software giant wants to offer a credible alternative to Google through the tie-up, offering greater choice to advertisers, increasing research and development spending and stripping out overhead costs.

It has also hinted at a hostile bid by reserving the right “to pursue all necessary steps” to win over the firm’s shareholders if the deal is opposed.