YahooSpaceAOLMSN?

The Yahoo (NASD:YHOO) situation appears to be heating up again.

The Wall Street Journal is reporting that a Yahoo-AOL deal may be imminent.  The deal, which would merge the AOL division of Time Warner (NYSE:TWX) with Yahoo, would leave it as a standalone company with Time Warner as the majority (20%) shareholder. In a tweet, Paul Kedrosky describes it as lashing two rocks together to see if they fly better than one. Ouch, though I guess he could have said float rather than fly.

At the same time, Silicon Alley Insider reports that News Corp (NYSE:NWS) and Microsoft may be teaming up in a revised bid for Yahoo. The combination of MySpace + Yahoo + MSN could be compelling, particularly if they let the Fox Interactive folks run the show.  Were Rupert at the helm, rather than Jerry Yang, one can imagine that Yahoo would have had a greater sense of urgency in fixing their broken business.

For those still holding their  Yahoo stock, it looks like there may now be some upside beyond the $31 initial MSFT offer.