News Corporation is in talks with Yahoo! over plans to merge their online assets in a move to fend off Microsoft’s $45 billion (£23 billion) hostile takeover offer for the online search engine.

Talks between News Corp, parent company of The Times, and Yahoo! have taken place over the past few days and are understood to be preliminary.

Any deal would include News Corp merging MySpace, the social networking business, and other online assets into Yahoo! and then taking a 20 per cent stake in the group. News Corp declined to comment.

The talks are aimed at helping Yahoo! to fight off an unsolicited offer from Microsoft to buy the internet group, which has suffered eight declining quarters of profitability and shrinking market share.

Ten days ago, Microsoft launched a cash and paper $31 per share offer for Yahoo!, valuing the group at a 62 per cent premium to its closing price the day before the approach was made public.

Since then, Jerry Yang, co-founder of Yahoo!, has rejected the offer as undervaluing the company.

Mr Yang is understood to have been trying to explore deals with a number of media and internet companies including AOL, Google and, most recently, News Corp.

It is thought that any deal between News Corp and Yahoo! would include a cash contribution from the media company. A deal would represent the culmination of various tie-ups which have been discussed by the two groups over the past 18 months.

On Wall Street last night Yahoo! shares jumped 1 per cent to $29.84.

After being rebuffed, Microsoft is expected to try to sweeten its offer for Yahoo!

The software group is keen to counter the growing dominance of Google and its lion’s share of the internet advertising market.

Microsoft has threatened that it will launch a proxy fight and seek to replace most of the Yahoo! board in the event that the online search company fails either to accept a deal or to start meaningful discussions.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts