The Week: Google offers lifeline to Yahoo! following Microsoft bid

Google has offered help to its rival Yahoo! by proposing a partnership between the two sites as a means of rebuffing Bill Gates' Microsoft's hostile £44.6 billion takeover bid for Yahoo!

Eric Schmidt, the Google chief executive, is thought to have telephoned Yahoo!'s founder, Jerry Yang, on Friday to propose the tie-up. The deal could see Yahoo! outsource its search and advertising functions to Google, while focusing on areas such as mobile applications, social networking and content sharing.

Other media, telecoms and private equity groups are also understood to have approached the internet group with offers, prompting Yahoo! to say that it needs time to evaluate its options.

Google said over the weekend that it had concerns about how a deal between Microsoft and Yahoo! would affect competition. On Monday, Microsoft countered that it expected the Yahoo! board to recommend its cash and shares offer quickly.

The hostile approach values Yahoo! at a 62 per cent premium to the closing share price last Thursday,the day before the proposal became public.