AOL Buying Yahoo? Signs Point to No

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aol.jpgADOTAS – You know, we’re living in modern times — it’s OK for the girl to ask the guy to get married, and it’s just as OK for the smaller company to buy the big, big one.

Although AOL’s market value is between $2 billion and $3 billion compared to Yahoo’s $22 billion, but that doesn’t mean that AOL can’t plot about a Yahoo takeover with private equity firms like Silver Lake Partners and Blackstone Group, according to The Wall Street Journal. AOL CEO Tim Armstrong is hot on the idea and the tech media already has its poms-poms out, screaming, “Go for it! Ra ra ra!

Sigh, it appears reality is getting in the way of this delicious dream: The New York Times’ Aaron Ross Sorkin dumps a big bucket of cold water on the rumors, claiming that the sources are bankers and investors trying to “gin up excitement” in a deal. Blackstone Group? Those guys already turned their nose up at the idea, Sorkin says. His sources also report that Yahoo first heard of the deal through the press, though the WSJ story made it pretty clear any deal was in pre-pre-preliminary stages.

The feasibility is not there: Yahoo would have to sell its 39% stake in Chinese Internet-based business syndicate Alibaba, estimated at $12 billion and making up a huge chunk of its market value. Although Alibaba CEO Jack Ma, who loves telling people about how much he hates Yahoo CEO Carol Bartz, wants to buy back the shares and a sale could definitely boost Yahoo’s stock price, the company reportedly sees more value in a public spinoff in the near future.

A more likely scenario is that Yahoo could ditch its Alibaba slice and purchase AOL to create a superportal, something display advertisers would line up to get a piece of.

Much of the merger gossiping revolves around shareholder impatience with and general dislike of Bartz. Since taking over as CEO in January 2009, her cost-cutting has brought back display revenue, but not at the same pace as the rest of the industry, which kinda sucks as Facebook is selling more impressions (at lower cost) and Google is muscling its way into the space. Bartz keeps arguing for more time, but shareholder anxiety keeps rising — though it doesn’t seem obvious what anyone fronting Yahoo could do to speed up a rebound… Except perhaps buy the chief competition [cough, AOL].

Both are old-school portals — if we think about how people start their Internet voyages, there’s portals like AOL and Yahoo, social networks like Facebook and Twitter, search engines like Google or email. The portal has been sagging in popularity for a long while — according to Compete, Yahoo’s homepage was no. 1 in unique visitors until Google took the title in February 2008. At the beginning of this year, Facebook passed by Yahoo in uniques, knocking it to third place. Yahoo’s homepage was at 127.5 million uniques in August, according to Compete, which was actually a significant rise from 103 million the year prior. AOL’s homepage has been hovering around 45 million monthly uniques for about half a year, though the company reported 118 million monthly uniques across its properties in its 2Q10 earnings.

From an advertising front, portals have proven a stronger medium for display and rich media than other options. The key? Content, of course, and both major portals keep making their offerings stronger: AOL just acquired TechCrunch, Yahoo recently bought Associated Content.

A Yahoo-AOL superportal would arguably keep Facebook and Google dreams of display domination at bay. While AOL buying Yahoo seems doubtful, a merger between the two seems likely the best road ahead. What do you think?

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