According to a report in The Wall Street Journal, News Corp has been holding secret talks with Yahoo! about merging MySpace and Murdoch's other digital assets with Yahoo!.
Under terms of the deal, News Corp would not buy Yahoo! but instead would take a 20% holding allowing Yahoo! to remain independent.
The reports follow yesterday's news that Microsoft's $44.6bn (£23bn) had moved a step closer, after Yahoo!'s second largest shareholder, Bill Miller, gave his backing to any proposed deal, but at a higher price than the one currently being discussed.
It is understood that under the proposals, funding for the News Corp acquisition likely to come partly from a private equity group.
News of the deal sent News Corp shares down over fears that the media giant might be about to make an expensive acquisition, but News Corp reassured investors saying it only envisioned an asset swap, which could in turn put a high valuation on MySpace and News Corp's other digital assets such as IGN.
Yahoo! has so far rejected all interest in it being acquired, but interest from two of the world's most powerful technology and media companies could prove decisive.
Microsoft has hinted at making plans for a hostile takeover after describing its initial rebuttal as "unfortunate" but one that it would take "all necessary steps" to fulfil.
In a recent letter to employers, Jerry Yang, chief executive officer of Yahoo!, explained the company's reasoning for rebuffing interest from Microsoft, arguing that the business was demonstrably "faster moving and better organised" than it was a few months ago.
Yang said: "We have redeployed our resources to drive Yahoo!'s key strategic priorities -- taking important steps to streamline our organisation and close down or scale back businesses that don't support these critical growth initiatives."
Despite News Corp and Yahoo! declining to comment on the reported talks, analysts noted that news of the possible acquisition were outlined on the News Corp-owned Wall Street Journal last night.
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