This morning brings another report of AOL M&A machinations involving ways to merge with or be acquired by Yahoo, now that both sites have very similar missions and strategies. They’re in a way like the Ford and Chevy of the internet these days: workmanlike but not very glamorous. Maybe that’s unfair to Ford.
Both Yahoo and AOL are focused primarily on display advertising with content creation driving page views. There’s a lot of similarity and a lot of overlap.
Reuters is saying that AOL is exploring how the company might break itself up, through a “complicated series of transactions,” and then sell the biggest and most strategic part of itself to Yahoo. Quoting the ever-present “unnamed sources” the article says that similar breakup plans were originally hatched within TimeWarner but aborted because of potential tax liability associated with such a maneuver.
One piece of AOL that would readily be shed is dial-up ISP business:
This strategy is dependent on the buyers for the parts, including Yahoo and EarthLink, whose directions have changed since Time Warner first considered these plans, said the sources.
EarthLink, for instance, was once a willing and capable buyer of AOL’s cash-generating dial-up business. But it has agreed to buy DeltaCom Inc for $516 million, tying up most of its free cash and is unlikely to pursue another big transaction for now, another source said.
Yahoo’s interest or capacity to buy AOL is still unclear. But it would take away a competitor and provide some additional reach and assets. AOL’s market cap today is $2.69 billion so the idea isn’t outside the realm of possibility. Presumably separating the dial-up business would make it even more “affordable” for Yahoo.
By comparison Yahoo’s market cap is $21 billion. However it only has about $3 billion in cash on hand. If Yahoo had Google’s bank account buying AOL would probably be a no-brainer.