News Corp executives -- including Murdoch's son James -- flew into Los Angeles twice this month to take a preliminary look at the storied daily's books, said the source, who spoke on condition of anonymity because the meetings were not publicized.

Rupert Murdoch is also eyeing the Chicago Tribune, whose publisher Tribune Co is now trying to exit bankruptcy. News Corp executives are in early talks with Tribune Co debtholders, including hedge fund Oaktree Capital. The company wants to secure footholds in Los Angeles and Chicago, according to the Los Angeles Times, which first reported the news.

Murdoch has long eyed the LA Times, the newspaper reported. Oaktree declined to comment, while News Corp did not respond immediately to requests for comment.

Wall Street has speculated that the company will take to the acquisition trail after its split into two businesses, one for entertainment and the other for publishing, to bulk up its holdings in a newspaper industry ravaged by advertising revenue losses and declining readership.

But any attempt by the media mogul to go after the two newspapers may run foul of regulatory hurdles.

Murdoch controls the Wall Street Journal -- which vies with USA Today for the mantle of the largest-circulation U.S. newspaper -- and the New York Post. News Corp last year was embroiled in a major scandal over phone hacking that eventually prompted it to close its British News of the World tabloid.

Also, Federal Communications Commission rules prevent ownership of a newspaper and TV station in the same market. News Corp now owns two Fox stations in LA, and two in Chicago, the newspaper reported.

The commission however has considered eliminating the rule and has granted exceptions in the past, including a waiver that allowed the Tribune to operate both KTLA-TV Channel 5 and the Los Angeles Times, the LA Times reported.

Murdoch also might face competition from well-known local figures. Other potential bidders include former venture capitalist and ex-LA deputy mayor Austin Beutner, Orange County Register owner Aaron Kushnere, and San Diego real estate mogul Doug Manchester, the newspaper said.

The Tribune Co, which owns 23 TV stations in addition to newspapers, filed for bankruptcy four years ago. Its other newspapers include the Baltimore Sun in Maryland, the Orlando Sentinel and Sun Sentinel in Florida, and the Hartford Courant in Connecticut.

In 2007, real estate mogul Sam Zell acquired Tribune through a leveraged buyout that saddled the company with $13 billion in debt just as the newspaper industry was hit by a severe drop in advertising revenue.

The company filed for bankruptcy a year later and has been mired in court while its creditors have fought over competing exit plans ever since.

Since 2007, newspaper advertising revenue for the industry has dropped almost 50 percent to $24 billion, according to the Newspaper Association of America.

(Writing by Edwin Chan; Editing by Paul Tait)

• A Permanent Economic Emergency