SAN FRANCISCO - YAHOO's stock rallied on Tuesday on a report that AOL's former chief executive believes he can raise enough money in a worsening recession to buy the struggling Internet company for as much as US$30 billion (S$46 billion).

The Wall Street Journal raised investor hopes with a story that said Mr Jonathan Miller, who stepped down as AOL's top exec two years ago, is trying to secure financing to make a bid for Yahoo at US$20 to US$22 per share, or US$28 billion to US$30 billion.

The story posted on the Journal's website cited unnamed people familiar with the matter.

Branding the report a 'rumour,' Yahoo spokesman Tracy Schmaler declined to comment. Mr Miller didn't immediately respond to interview requests.

Yahoo shares rose 76 cents, or more than 7 per cent, to close at US$11.50, reflecting hopes that a new suitor may emerge for the Sunnyvale-based company. The surge left Yahoo with a market value of US$17.4 billion.

Given his past experience running AOL, Miller has the connections and savvy needed to turn around Yahoo, said Standard & Poor's Internet analyst Scott Kessler.

But Mr Miller faces a huge hurdle: A credit crunch and the prospect of the deepest recession in a generation has spooked lenders and investment funds so badly that they have shown little interest in making big bets on risky propositions like this.

Mr Miller 'has a strong reputation and an expansive Rolodex, but (US$30 billion) is a lot of money to raise in an environment when deals are falling apart and companies are going out of business just about every day,' Mr Kessler said.

Speculation about Yahoo's future has intensified since rival Google pulled out of a proposed advertising partnership a month ago.

Yahoo had been counting on the alliance to boost its profits and placate shareholders incensed about the company's rebuff of a US$47.5 billion takeover bid from Microsoft.

The guessing game took a new turn two weeks ago when Yahoo founder Jerry Yang revealed his plans to step down as CEO as soon as a replacement can be found.

Mr Yang, who became CEO in June 2007, didn't want to sell to Microsoft because he believed he had charted a strategy that would prove the company was worth more than the software maker was willing to pay.

Most industry analysts believe Microsoft eventually will return to the bargaining table and buy Yahoo's search engine - a concept that has been embraced by Yahoo's most outspoken board member, Mr Carl Icahn. Microsoft CEO Steve Ballmer also has said he remains open to that idea.

The Times of London tantalised investors during Thanksgiving weekend with a report that Microsoft was preparing to buy Yahoo's search operations for US$20 billion in a complex deal involving Miller and his current partner, former News executive Ross Levinsohn.

But representatives from both Yahoo and Microsoft have since denied any discussions along these lines are taking place.

Mr Miller almost joined Yahoo's board during the summer after the company agreed to add three new directors to quell a shareholder revolt led by Mr Icahn.

But AOL's corporate parent, Time Warner, cited a provision in Mr Miller's severance agreement that prevents him from working for a rival.

The non-compete agreement expires in March, prompting some analysts to predict Mr Miller might be hired as Yahoo's next CEO even if he doesn't end up buying the company.

Yahoo also has been discussing a possible combination with AOL for months, but the two sides haven't been able to agree on terms.

Although Yahoo's website remains among the most popular on the Internet, the company's profits have been dwindling during the past three years.

The recession is expected to make a comeback even more difficult by depressing spending on the Internet ads that generate most of Yahoo's revenue.

The challenges have devastated Yahoo's stock price, leaving it at a fraction of Microsoft's last buyout offer of US$33 per share.

The downturn has become so severe that investors are placing little value on Yahoo's US operations.

Mr Kessler estimates that just the company's cash and Asian assets are worth about US$8 per share, making Yahoo an increasingly takeover target for opportunistic investors.

'If the economic mate were different, there would be a lot of private equity funds interested' in a Yahoo buyout, said Mr Peter Falvey, managing director of technology dealmaker Revolution Partners.

'But I find it pretty far-fetched in this kind of market.' -- AP