Does an AOL-Yahoo merger make sense?

The rumor mill says AOL and some private equity firms are eyeing Yahoo. Would the two "tarnished brands" benefit by teaming up?

The merger of Yahoo! and AOL could succeed financially, but that doesn't mean it will move forward.
(Image credit: Corbis)

Yahoo! is exploring its options amid rumors that internet portal AOL wants to buy its larger rival, with financing from private equity groups. AOL famously acquired much-larger media giant Time Warner at the height of the tech bubble and has since been spun off by its former partner. Can it make another go at swallowing a bigger fish — Yahoo is worth about $21 billion, AOL, $2.7 billion — and would it make sense for Yahoo to sign on? (Watch an AP report about the rumored merger)

Two wrongs don't make a right: Tech "dinosaurs" AOL and Yahoo now epitomize "the height of utter irrelevance," says Jon Friedman in MarketWatch, and combining the "once-proud franchises" would be as pointless as "the Mets buying the Cubs." Both tech firms are poorly managed, and neither has been able to keep pace with rivals like Google and Facebook. In the end, "mediocrity + mediocrity = lots of mediocrity."

"AOL-Yahoo: Like the Mets buying the Cubs"

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The deal actually makes sense: The "wiseguy commenters" are having a field day, says Dan Gillmor in Salon, "but there's actually some sense in this combination of two admittedly tarnished brands." AOL and Yahoo are primarily in the same business, selling ads over aggregated content, and of the two CEOs, AOL's Tim Armstrong is the one "showing a reasonable clarity of vision." Maybe he can do something with Yahoo's loads of wasted "talent."

"Yahoo plus AOL equals... what?"

Bottom line — not gonna happen: Not only is Yahoo not party to the talks, says John Carney at CNBC, it is reported to have hired Goldman Sachs to help fend off takeovers. Here's my take: The private equity firms approached Yahoo privately and were rebuffed. "So [they] decided to force the issue by making their interest public [via a newsworthy alliance with AOL]. The hope is that the jump in the price of Yahoo stock will create pressure on management to be more receptive to a deal." Well, that "almost never works," and if anything, Yahoo is now "less inclined to cut a deal with AOL."

"Can AOL really buy Yahoo?"

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