Yahoo turns to AOL

Yahoo is once again considering a merger with AOL in order to protect itself against a hostile bid from Microsoft, writes British newspaper The Times. Having formally rejected a bid worth nearly $45 billion, Yahoo is said to be in talks with advisers from Goldman Sachs and Lehman Brothers, who have been helping the company search for a partnership that might block a Microsoft acquisition. One such partnership could be with the Time Warner-owned AOL, although Google -- which has a five-percent stake in AOL, and is Microsoft's main enemy -- has reportedly offered to support Yahoo.

The original attempt at an AOL/Yahoo merger fell apart, due to arguments over price. Views are said to have changed however, due not just to the looming threat of Microsoft, but also a worsening US economy on the verge of recession.

Microsoft may in fact be attempting to pick up Yahoo as a bargain, a source close to Yahoo argues. "All they are trying to do is pick off the company on the cheap. They’re trying to steal it. And the board is not going to let that happen. They have gone for a valuation that reflects the five-year low of the stock.”

Reflecting Yahoo's belief that it is undervalued, the payout per share may have to increase substantially from the current $31. "It would have to be in the 40s to start talking, and we would have to get over regulatory issues," the source says. "It would have to be an offer that would give [Yahoo co-founder] Jerry Yang something to stand on a podium and smile about." Microsoft in fact put a 62 percent premium on Yahoo shares with its bid, announced on February 1st.

The former company may be attempting to work through subversive means however, speaking directly to Yahoo shareholders, and plotting to use its ownership of Yahoo stock to vote for Microsoft-friendly board members. The latter has not happened yet, but is said to be a weapon Microsoft will pull out if Yang continues to avoid merger talks.

By Electronista Staff