Yahoo Shareholder Doubles Up As AOL, Newscorp Enter Fray

Yahoo's largest institutional investor doubled its stake in the company amid reports that media giants Time Warner and News Corp. could become involved in bidding for the Internet portal.

Capital World Investors, a unit of Capital Research and Management, disclosed in a regulatory filing Thursday that it increased its stake in Yahoo from 5.2% of outstanding shares to 10.1%. Capital World Investors now owns 135.5 million Yahoo shares, according to the document, which was filed with the Securities and Exchange Commission.

The investment firm may be betting that Microsoft is ready to increase its $31-per-share offer for the company -- an offer that Yahoo's board to date has steadfastly rejected.

Microsoft disclosed its plan to buy out Yahoo on Feb. 1. After weeks of inactivity on both sides, developments related to the proposed deal have come fast and furious in the past several days.

Microsoft CEO Steve Ballmer on Saturday said Yahoo's board must accept his offer within three weeks or face a hostile proxy fight. Yahoo on Monday responded by accusing Microsoft of failing to negotiate seriously.

Now, both companies appear to be enlisting allies.

Yahoo on Wednesday said it would outsource some of its search traffic to Google under a trial program. The move was widely seen as an effort to complicate Microsoft's plans. Also, The Wall Street Journal reported Wednesday that Yahoo is exploring an alliance, or possible merger, with Time Warner's AOL unit as a way to fend off Microsoft.

Microsoft, in turn, is courting Rupert Murdoch's News Corp. as a possible partner in what would become a joint bid for Yahoo, according to The New York Times.

The buzz around Yahoo -- and its possible dance partners -- sparked an uptick in the company's stock price this week. Yahoo shares were priced at $28.50 as of late afternoon Thursday, up about 3% since Monday.