Reports of a possible tie-up between AOL Inc. (NYSE: AOL) and Yahoo Inc. (NASDAQ: YHOO) won’t die and don’t even seem to fade away. The Wall Street Journal reports that AOL has hired advisers to assist it in exploring strategic options for AOL, including a possible merger with Yahoo.
According to “people familiar with the matter,” the two companies have not initiated formal talks nor is there a formal offer on the table. A combined AOL/Yahoo would hold about 13.5% of the display advertising market, according to data released today by comScore., well ahead of Google Inc. (NASDAQ: GOOG), which counts just 2.7% of the display advertising market. Facebook.com leads the display market with 23.1% according to comScore. In search advertising, Google claims more than 75% of the market.
And Yahoo shareholders aren’t likely to forget the deal Microsoft Corp. (NASDAQ: MSFT) offered in 2008 — a buyout for $44 billion that then-Yahoo CEO Jerry Yang turned down.
Since then, Yahoo has struggled, and the company’s market cap has fallen to about $22 billion, of which about half is the company’s 40% stake in Asian e-commerce giant Alibaba Group. Yahoo has already rejected several offers from Alibaba to buy back Yahoo’s stake for sums reported at $10-$11 billion.
A hookup of AOL and Yahoo would almost certainly need to divest Yahoo’s stake in Alibaba. To say nothing of the complexities of tax implications, and cooperation and agreement among the several players. Tech-watcher Kara Swisher at the WSJ’s All Things Digital blog cites an investor who scoped out an AOL-Yahoo deal as saying, “But when you actually do the numbers, you hit a pretty big wall of impossible.”
Swisher goes on to wonder if the latest report isn’t just the two companies’ investment advisers trying to gin up some enthusiasm for such a deal in an effort to generate fees. In mid-October there were reports that private equity firm Silver Lake Partners and Blackstone Group (NYSE: BX) may have had an interest in joining AOL in a bid for Yahoo. Those reports were later put to rest.
While it’s always best to hedge and never say never, a merger between AOL and Yahoo has little chance of getting off the ground. It doesn’t make much sense for the companies or for their investors. Ah, but for their bankers…
