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Forget Yahoo-Microsoft, Yahoo has eyes for AOL

AOL owner Time Warner made no secret of the fact that it was hoping to sell or otherwise reorganize its floundering internet acquisition.  In the latest installment of the saga of Yahoo's management and board trying to fend off the advances of Microsoft and its CEO Steve Ballmer, it appears that Yahoo is ready to step in and merge with AOL.

The Wall Street Journal and Reuters both described Yahoo as "closing in" on the prospective merger.  Yahoo and Time Warner's shareholders both have to approve the deal, but analysts give it an excellent chance of passing through, based on willingness of both sides' management.

If the acquisition goes through, AOL will fold into Yahoo, and AOL will spend a tidy sum of cash to gain a 20% stake of the combined company.  Yahoo will try to repurchase several billions of its shares in the mid-$30 range, in essence regaining ownership from the shareholder. 

Microsoft is not content to sit and watch its prospective acquisition get carried away, and is ready for war, further complicating the mix.   According to the New York Times Microsoft is in talks with News Corp., owned by Rupert Murdoch, about making a joint bid for Yahoo.  No details on the nature of such an arrangement are known at this time.

And Yahoo isn't just a one-partner company.  It's also made progress with its attempts at winning over Google, which previously had been unmoved by Yahoo's desire to test the waters with a joint advertising deal.  Now Yahoo has announced that it will run a preliminary two-week test on its portal to run Google advertising.  The move, along with its new advertising platform, could bring Yahoo a much needed increase in revenue and value.

Industry analysts remain skeptical of Yahoo's moves, though and say that its just making matters worse and should merge with Microsoft.

“We continue to believe reaching a mutual agreement with Microsoft would be the best way for Yahoo to potentially extract a higher bid,” states UBS analyst Ben Schacter in a note.  “The alternative would be for Yahoo shareholders to tender, although this process would not be as expeditious as if the two sides were to come to terms, and could involve a lower offer price, making the battle potentially even more protracted.”




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