14 DAY TRIAL // A number of rumors have been pairing Yahoo and AOL together as Yahoo seems in a vulnerable position for a takeover. AOL's Tim Armstrong has been, apparently, talking to a number of people about his company buying Yahoo. AOL is about eight times smaller than Yahoo in terms of market cap.
A number of reports have been coming in talking about several companies mulling over the possibility of buying Yahoo.
AOL is one of the contenders but so is News Corp. which has seen its online properties, basically MySpace, wither.
Yahoo, which has been trying to reinvent itself as a media company would probably slot in nicely with News Corp.'s businesses which include Fox TV and movie properties.
However, an AOL buy is a lot more interesting, not only because of the size difference between the two companies. AOL, like Yahoo, is trying to turn things around and is focusing on online media.
In a lot of ways, the goals of the two companies are the same and they compete in several sectors.
AOL, which was recently spun off from Time Warner is worth about $2.68 billion, a figure significantly smaller than Yahoo's $20.56 billion market cap.
And this is after Yahoo lost about half of its worth in the years following the rejected Microsoft takeover bid.
AOL would need to raise significant capital in order to pull off the move and there aren't that many places where you can get that kind of money, either private-equity firms or a big Silicon Valley partner.
Another, more interesting option was put forward, a reverse merger in which Yahoo would effectively buy AOL, but the AOL management team would run the new company.
This makes some sense since shareholders are not very happy with Yahoo's current leadership or the actions of its board. They would much rather have someone like Tim Armstrong lead the company.
There are some wildcards as well. While Yahoo is still one of the biggest site on the web and enjoys a solid if static revenue stream, most of the company's current market value comes not from Yahoo itself but from a couple of stakes it has in the Asian web.
Specifically, Yahoo owns almost 40 percent of Alibaba, the Chinese b2b e-commerce giant which runs a number of web properties in the country, including Yahoo China. That stake could be worth as much as $10 billion.
Yahoo also owns a 35 percent stake in Yahoo Japan, which, despite the name, is a separate company. Alibaba in particular has been trying to drive out Yahoo for years now.
If AOL were to try to take over Yahoo, or any kind of deal were to happen, it would most likely involve the sale of its Asian interests first.
No offer is on the table yet and Yahoo is said to have been talking to Goldman Sachs to verify if there are indeed companies interested in buying it and to advise it if there are.
Yahoo is scheduled to release its quarterly financial report next week. While an AOL - Yahoo merger may not be a great idea, it should be interesting to watch the developments.