Private equity firms sound out rivals over potential takeover of Yahoo

A number of private equity firms have contacted internet and media companies such as News Corp and AOL to gauge their interest in buying out Yahoo. The news comes as Yahoo, the second largest search engine in the United States behind Google, struggles to revive its revenue growth under its chief executive, Carol Bartz, and to regenerate its buzz among consumers amid competition from social networking sites such as Facebook and Twitter.

A potential deal is expected to be contingent on Yahoo selling its prized Asian assets, including a 40 per cent stake in China's Alibaba Group and 34.5 per cent of Yahoo Japan.

Talks with News Corp and AOL are understood to have began about two weeks ago and have intensified in recent days, although Yahoo has not yet been approached as talks are still in their early stages.

Speculation of private equity interest in Yahoo, which is also struggling to stem an exodus of senior executives to rivals, has surfaced sporadically in recent months. Silver Lake Partners was among the firms in recent, preliminary discussions about acquisition scenarios. Blackstone had also been pitched the idea but is not believed to be currently working on a Yahoo deal.

News Corp, AOL, and Yahoo declined to comment yesterday.

Yahoo's plans for its Asian investments have sprung into the investor spotlight since Yahoo Japan turned to its arch-foe Google for its internet search technology.

Once dominant in search, Yahoo has been overshadowed by Google's growth and its market value is now little more than a tenth of its rival's.

Disposals of its Asian assets – which some of Yahoo's investors favour – would help drastically reduce Yahoo's market value of almost $20bn (£12.5bn) now, making a deal more feasible. Yahoo has a $7bn stake in Yahoo Japan, and a 40 per cent stake in Alibaba, which analysts believe is worth up to $10bn.

Shares in Yahoo were up 4 per cent in early New York trade yesterday.