The Times newspaper has reported that its parent company News Corporation is in buyout talks with Yahoo! to rebuff Microsoft's £23bn hostile takeover offer.
The report states that preliminary talks have taken place over the past few days.
The deal could see News Corp, owned by Rupert Murdoch, merge its MySpace website together with Yahoo's online assets by taking a 20% stake in the search engine group. News Corp declined to comment to The Times.
Yahoo is poised to fight an unsolicited offer from Microsoft. Yahoo has suffered eight declining quarters of profitability, according to results.
Microsoft launched a cash offer of $31 per share for Yahoo!, valuing the group at a 62% premium to its closing price the day before the approach was made public.
Jerry Yang, co-founder of Yahoo!, rejected the offer saying that it undervalues the company.
Microsoft said that it's offer was fair and that it might take its offer direct to shareholders.