According to the Silicon Valley rumor mill, Fox Interactive, a division of News Corp., has dangled social network icon MySpace in front of the Yahoo! board to tempt them into selling a 25% share of the company. While MySpace carries a significant amount of traffic, the jury’s out whether it’s worth the price tag.

The first question that comes to mind is “WHY?”

Why has Fox Interactive, or audacious owner Rupert Murdoch, decided to leverage the social network he bought in 2005 for a mere $580 million to secure a stake in Yahoo!? MySpace now carries more traffic than Yahoo!, and is estimated to be worth approximately US$10 billion by market analysts.

Considering Yahoo!’s poor performance and shareholder unrest, this is the best chance Murdoch has to make such an offer. With Yahoo! stock prices at record lows and the newly appointed Yahoo! leadership team (Jerry Yang and Sue Decker) looking to reverse the trend, now more than ever, they might consider such a deal.

The one key fact working against the rumored deal is the perception that MySpace is a social network that has reached its peak, and with increasing competition from the likes of Facebook and vertical driven social communities, its future forecasts aren’t as attractive.

So who wins should the deal go ahead? In reality, Fox Interactive would be the real winners, as diversifying their interests would help mitigate the diminishing returns from MySpace.

I would be surprised if the new Yahoo! executive team takes up such a deal so early on in their tenure – even if it means they squeeze Google out of their $1 billion deal with Myspace. One major acquisition isn’t going to solve all their problems.

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