Microsoft Corp. is attempting to enlist News Corp. in its bid for Yahoo! Inc., while the reluctant target is in turn hoping to retain its independence through a tie-up with AOL, news outlets reported Thursday, April 10.

The Redmond, Wash. software giant, which is under pressure to sweeten a $44.6 billion cash-and-stock offer for Yahoo! made in February, is in talks with Rupert Murdoch's media behemoth about launching a new bid, according to The Wall Street Journal and The New York Times. The development marks the realignment of News Corp., the owner of MySpace, which had flirted with a white-knight combination with Yahoo! The Journal cited one source describing talks between Murdoch and Microsoft CEO Steve Ballmer as "serious," though the companies have not yet reached an agreement.

Meanwhile, Yahoo! and Time Warner Inc.'s AOL are nearing a deal to combine their Internet operations, according to outlets including The Journal and Bloomberg. News of the plan, under which Time Warner would reportedly fold AOL into Yahoo! and make a cash investment in return for about a fifth of the enlarged company, comes a day after Sunnyvale, Calif.-based Yahoo! bolstered its defenses against Microsoft by announcing it will test an advertising alliance with Google Inc.

But a deal between Yahoo, Google and AOL would most certainly garner intense scrutiny from antitrust regulators, since Google already controls about two-thirds of the search-ad market.

Following Yahoo's announcement of the test with Google, U.S. Sen. Herb Kohl, D-Wis., chairman of the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights, said his subcommittee will be "following closely the results" of the test.

"Should there be moves to make this agreement permanent, we will examine it closely in the antitrust subcommittee to ensure that it does not harm competition," Kohl said in a statement.

The move promptly drew a response from Microsoft, which blasted any proposed alliance between Yahoo and Google in the search market as potentially anticompetitive. Microsoft General Counsel Brad Smith said the agreement would consolidate more than 90% of the search advertising market in Google's hands.

"This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo," Smith said in a written statement. "We will assess closely all of our options. Our proposal remains the only alternative put forward that offers Yahoo shareholders full and fair value for their shares."

The Journal said the deal between Yahoo! and AOL wouldn't include AOL's dial-up access business and would value AOL at about $10 billion. Yahoo! would use the cash received and additional funds to buy back "several billion dollars worth" of shares at between $30 and $40 a share, the newspaper said.

Microsoft's Feb. 1 offer for Yahoo! was worth $31 per share in cash and stock and was a 62% premium to Yahoo!'s prevailing share price, though the value has since declined in line with Microsoft's share price. Yahoo! Monday reiterated its rejection of the bid after Microsoft's Ballmer had Saturday given the company three weeks to agree on a takeover offer. Yahoo!, led by CEO Jerry Yang, is due to report first-quarter earnings April 22. -- Laura Board