This has been proposed before by both parties and Rupert Murdoch even admitted to talking last year about combining some part of MySpace with Yahoo (NSDQ: YHOO), and seems those talks have been picked up again: News Corp (NYSE: NWS). and Yahoo are in discussions about combining Fox Interactive with Yahoo, as a way to develop an alternative to the Microsoft (NSDQ: MSFT) bid. News Corp. would take a 20 percent stake in Yahoo under the plan being discussed, reports WSJ (WSJ of course is now a sister concern within News Corp, so any combination if it happens will have implications all across News Corp).

The deal could include another private equity firm putting up money and taking a stake. Fox Interactive’s main assets include MySpace, IGN, FoxSports, Photobucket, AmericanIdol.com and other smaller services. This round of talks was first reported by SAI and more details by Techcrunch.

When the Microsoft bid first emerged, the News Corp officials said they were not interested, but after a go-ahead from Yahoo board, the talks started in earnest in the last few days. In fact Murdoch said as late as Feb 4 that News Corp was not interested in a Yahoo or AOL (NYSE: TWX) bid.

Staci adds: A little more background: When News Corp. was suggested as a possible buyer just after the Microsoft bid, an exec there waved me off, and, as Rafat mentioned above, Murdoch also said no to an acquisition. During last week’s earnings call, Murdoch said reports of “talks” with Yahoo were exaggerated, that there were “references” in social meetings and that was with “the previous chairman”—i.e. Terry Semel. In Murdoch-land, anything is possible once he decides it’s worthwhile—and deals have fallen apart just as quickly because he decided against it. 

One thing this proposal wouldn’t do as outlined so far: provide any obvious, immediate reward for Yahoo shareholders. 

Update: Staci adds: I’ve confirmed that talks between Yahoo and News Corp. are ongoing; the best description right now would be exploratory. I see no signs that News Corp. is shifting from Murdoch’s “no acquisition” but this time around it’s more than social conversations. As to whether something might actually come of it, see the above description of Murdoch-land.

Update 2: LAT says Yahoo’s board is meeting today to discuss News Corp. and other options. Also, it speculates that the PE firm could be Providence Capital, which invested $100 million in News Corp. and NBCU’s JV video site Hulu.