Against the backdrop of economic meltdown Yahoo and AOL are reportedly continuing their merger talks in earnest. We wrote about the potential combination several times during the initial wave of MicroHoo negotiations, when Yahoo approached TimeWarner as an alternative to Microsoft, and more recently again.

Based on back and forth discussions with both Yahoo and Microsoft over the past several months, it appears that TimeWarner genuinely does want to deal AOL to someone (there are really on a few choices). TechCrunch speculates that the deal on the table contemplates a Yahoo acquisition of all of AOL’s business except the ISP services. TimeWarner would also throw in cash and would have a one-third stake in the new entity.

The current economy may make any such deal more likely than if markets were healthy.

There are both regulatory and integration challenges in any YahOL or AHoo scenario. It would trigger many distracting months of regulatory scrutiny in the US and Europe and then, assuming it were approved, there would be the “non-trivial” challenge of bringing the many internal units together.

I also suspect that if a Yahoo-AOL combination were announced in the near term, it would doom the increasingly unpopular Google-Yahoo paid search deal.

Related Topics: AOL: General | Channel: Industry | Yahoo: Business Issues | Yahoo: Partnerships

About The Author: Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling. See more articles by Greg Sterling

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