Murdoch turns back on Yahoo! (YHOO) deal

Yahoo! (NASDAQ:YHOO) is running out of options to keep itself out of the hands of Microsoft (NASDAQ:MSFT). Rupert Murdoch said that his company, News Corp (NYSE:NWS), would not pursue a deal with the portal. There had been talk about combining Murdoch's huge social network, MySpace, with Yahoo! to create a company with a tremendous internet user base.

"We're not going to get into a fight with Microsoft, which has a lot more money than us," Mr Murdoch said, according to the FT. He was bowing to the inevitable, which is that Redmond's $44 billion bid for Yahoo! is not going to be topped by another company.

Aside from cutting down Yahoo!'s options, the news points to the great sense of putting the internet company together with Microsoft's online business. The two companies would have about 32% of the search business in the US. Google (NASDAQ:GOOG) has about 60%. Neither Yahoo! nor Microsoft can handle Google's lead on its own.

The merger would also save money. Microsoft's online operations are in the red. As Yahoo!'s revenue has slowed, so has it margin growth. A combination would allow for the reduction of staff. Yahoo! needs a partner and it has run out of suitors.

Douglas A. McIntyre is an editor at 247wallst.com.