SAN FRANCISCO—A week after saying he wouldn’t get into a bidding war for Yahoo Inc., Rupert Murdoch is emerging as a potential white knight for the Internet company as it tries to fend off Microsoft Corp.’s unsolicited takeover bid, according to people familiar with the talks.

Murdoch’s News Corp. is working on an offer to merge its Internet business, which includes social-networking site MySpace, with Yahoo in exchange for a major stake in the company, according to people who have been briefed on the discussions.

Yahoo’s board was meeting Wednesday to discuss News Corp. and other options, a person close to Yahoo management said. Yahoo rejected Microsoft’s $44.6-billion offer as too low, and Microsoft has signaled it would consider taking the bid directly to shareholders through a proxy fight. Analysts expect Microsoft to raise its half-cash, half-stock offer of $31 a share.

The talks with News Corp. began shortly after the takeover bid was announced February 1. Under the plan being discussed, Yahoo chief executive Jerry Yang and president Sue Decker would run the combined company, which would include Yahoo, MySpace and other Web properties owned by News Corp.’s Fox Interactive Media, a person familiar with the discussions said.

Yahoo also would receive a cash infusion from a private equity fund, whose identity could not be confirmed Wednesday. One source said Providence Capital, which invested in News Corp.’s and NBC Universal’s online video joint venture, Hulu, was a likely candidate.

Yahoo and News Corp. declined to comment. Providence Capital could not be immediately reached.

“The Yahoo board is carefully evaluating all of the company’s strategic alternatives and will pursue the best course of action to maximize long-term value for stockholders,” Yahoo spokesman Tracy Schmaler said.

In the days following the Microsoft bid, News Corp. said it was not interested in competing with Microsoft to buy Yahoo. Now Yahoo and News Corp. are trying to rush a deal to the table with the help of the unnamed private equity fund. The talks were first reported this week by blogs, including Silicon Valley Insider and TechCrunch.

“I wouldn’t doubt they are having discussions, but I am not sure it amounts to an alternative that’s as attractive to Yahoo shareholders as even the existing Microsoft bid, and certainly not a sweetened bid,” Stanford Group analyst Clayton Moran said.

Moran said MySpace’s advertising partnership with Yahoo rival Google Inc. would be a “complicating” factor to such a deal.

TechCrunch placed the total investment at about $15 billion, which would value Yahoo at about $50 billion before the transaction. News Corp. and the private equity fund would get more than 20 percent of the combined company, making them the largest single stockholder.

Wall Street isn’t giving much credence to this or other alternatives explored by Yahoo’s board, such as a merger with Time Warner Inc.’s AOL.

Shareholders—particularly speculators who have jumped into the stock since the bid was announced—are anticipating a $36-a-share payout in cash and Microsoft stock. They also have grown disenchanted with Yang’s leadership.

Yahoo’s other option, an alliance with Google in Web searching, seems to be a fading possibility. Analysts had encouraged Yahoo to farm out its search business to Google, but such a deal would likely get tough scrutiny from anti-trust regulators.

Microsoft said Monday that it was determined to acquire Yahoo by whatever means necessary.

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SAN FRANCISCO—A week after saying he wouldn’t get into a bidding war for Yahoo Inc., Rupert Murdoch is emerging as a potential white knight for the Internet company as it tries to fend off Microsoft Corp.’s unsolicited takeover bid, according to people familiar with the talks.

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