Private equity courts News Corp, AOL on Yahoo

A potential deal, however, would be contingent on Yahoo selling its prized Asian assets, including a 40% stake in China's Alibaba, the source said on condition of anonymity.

That would help reduce Yahoo's market value of more than USD 20 billion now, making a deal more feasible. Discussions with News Corp and AOL began about two weeks ago and intensified in recent days, but Yahoo had not yet been approached as talks were still in their early stages, the source added.

News Corp, AOL and Yahoo declined comment. The source did not name the private equity firms.

Speculation of private equity interest in Yahoo, which is struggling to revitalize growth and stem an exodus of senior executives to rival companies, has surfaced sporadically in various Interneet reports in past months.

The Wall Street Journal on Wednesday reported Silver Lake Partners and Blackstone Group were among the private equity giants considering buying Yahoo, sending its shares soaring.

Shares in Yahoo, which finished Wednesday up nearly 6 percent, gained another 9.5% to USD 16.71 in extended trading.

The Journal cited people familiar with the matter as saying private equity firms were exploring the possibility of teaming up with AOL on a joint bid, which could give AOL the content and online eyeballs it needs to remake itself into a news and entertainment powerhouse.

The private equity firms were also pondering taking the Yahoo private themselves,the Journal reported.

Among the scenarios discussed, one involved Alibaba Group buying back Yahoo's 40% stake in the Chinese firm and Yahoo selling off assets to rival media and technology companies, the newspaper reported.

Another could involve AOL combining its operations with Yahoo in a reverse merger again after Yahoo sells its stake in Alibaba, China's top online commerce firm, it said.