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Yahoo Eyes AOL Deal, Microsoft Courts Murdoch

Yahoo seeks tie-ups with AOL and Google, while Microsoft and News Corp. discuss a joint bid for Yahoo.

There is a furious crescendo of deal-making activity among the Internet's largest players tonight, as both Yahoo and Microsoft seek allies to strengthen their hand in the prolonged takeover battle. Here's the latest:

  • The Wall Street Journal and Paid Content are both reporting that
    Yahoo (YHOO) is close to a deal with AOL (TWX) that would combine the Internet titans' operations as part of a broader strategy to rebuff a takeover bid by Microsoft (MSFT).
  • The New York Times and the Journal are reporting that News Corp. (NWS) is in serious talks with Microsoft about a joint bid for Yahoo Inc. "The combination, which would join Yahoo, Microsoft's MSN and News Corporation's MySpace, would create a behemoth that would upend the Internet landscape," The Times writes.
  • Earlier Wednesday, Yahoo announced that it would begin a limited test of Google Inc.'s AdSense for Search service, which will deliver relevant Google (GOOG) ads alongside Yahoo's own search results. Many analysts believe Yahoo can instantly increase its ad reveneue by using Google's ads, which typically monetize search results more effectively than Yahoo's own technology. The announcement was seen as a clear sign that Yahoo was serious about pursuing alternatives to a Microsoft deal.

Stay tuned. The twists and turns are coming quickly, with each scenario offering potentially dramatic shifts in power, partners and page views.