Rumor: Yahoo! Merging With AOL?

April 9th, 2008

This seems like a very strange idea. But taken in conjunction with the Google ad partnership, just may be plausible, if only to stave off Microsoft.

The Wall Street Journal is floating the possibility that Yahoo! has worked out a merger with AOL as an alternative to be bought by Microsoft.

Under the terms being discussed, Time Warner would fold its AOL unit into Yahoo and make a cash investment in return for about 20% of the combined entity, the people said. The deal, which wouldn’t include AOL’s dial-up access business, would value AOL at about $10 billion. As part of the deal, Yahoo would use the Time Warner cash and additional funds to buy back several billion dollars worth of its own stock at a price somewhere in the middle of the range between $30 and $40 a share, the people said. Any deal would be taken to Yahoo shareholders for approval, the people said.

This might make the combined entity too large for Microsoft to want to swallow - at least today.

I say “today” because at worst, the merger would be two sinking ships tying themselves together, heading into the quagmire that is recession. AOL was nothing but an albatross on Time / Warner’s neck, instead of how it was supposed to be - remember AOL bought Time / Warner. That merger was the most ridiculous, bubbly deal made at the end of the Web 1.0 boom, and signified its collapse. Yahoo! merging with AOL may merely be a move of desperation.

If this comes to pass, I think it’s a safe bet that the combined dirigible would destroy itself with layoffs, fleeing employees, and lumbering management. Haven’t we said all along that the management part of the problem at Yahoo!? What does AOL provide that solves that? Meanwhile, Microsoft (or Google) could just kick back and wait for a year or two, and pick up the combined entity for less.

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Viewing 4 Comments

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    Interesting. I'm not too bullish on an AOL/Yahoo merger, but I suppose it has *some* merit.

    * It would solidify Yahoo's ambitions on the middle-America crowd (both Yahoo and AOL have been abandoned - to some extent - by the technorati/bleeding edge), but there is still a big pack of mainstream users that are using these services and still valuable to advertisers

    * The 2 companies have been pursuing in-house content strategies that *might* complement each other (think Yahoo's "Shine" and AOL's popular TMZ). Granted Google's been whipping both companies with a distinctly different strategy, but by going the content route, and avoiding the search/adsense competition, they could get out of the direct gunsights of "THE GOOGLE"

    * It's not hotmail/yahoomail, but both have significant email and im audiences. There might be something nice there.

    * I rarely go to AOL.com, but I just did for kicks and I'll be damned if their homepage doesn't look almost identical to the Yahoo one! (see for yourself). That's synergy baby!

    Anyway, I'm grasping at straws here. The big question is: if I'm a large shareholder, which future is sounding better to my wallet? If I'm patient, maybe the AOL/Yahoo deal is sounding good. But if I'm not, the certainty of the MSFT offer sounds damned good in the short-term...and one has to think that a MSFT/Yahoo combo still sounds more potent long-term than an AOL/Yahoo combo (despite anyone's misgivings about Ballmer and the "evil empire").
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    Good points. I think that long-term / short-term issue for shareholders is a huge one. If you think Yahoo! management is competent enough to manage a merger with AOL, vs. their mismanagement is part of the problem, and they deserve to be bought / replaced.

    Now there's this added wrinkle of News corp "changing sides" and siding with Microsoft - meaning if Yahoo! goes Microsoft they could get access to MySpace.

    I wonder which will wrap up sooner - YHOO / MSFT or Hilary / Obama?

    I really hope YHOOs earnings (real soon now) provide an impetus for action one way or another. It could be that this AOL merger business is just a negotiating tactic to get MSFT to raise their bid. And earnings will be the proof of Yahoo!s worth at this point in time.
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    That MySpace wrinkle is a really interesting one.

    I'm also amused by the fact that Google bought a stake in AOL (a year ago?) and MSFT has that stake in Facebook. Everyone has their fingers in so many pies....it makes for some interesting combinations/alliances as you mix and match the various pieces in the puzzle.
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    I hate it when huge corporations merge. Pretty soon the world will just be 1 big corporation. And it will probably be ran by George W! LOL
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