I'm not the type to dismiss rumor-mill chatter without conducting some due diligence of my own. Still, it didn't take long for me to laugh off yesterday's Silicon Alley Insider report, claiming that private equity firms were in talks to unite AOL
According to a "plugged-in source," the plan is to have AOL CEO Tim Armstrong run the combined company after private-equity firms combine the two former tech titans into one.
Don't get me wrong. I think a combination of AOL and Yahoo! makes sense. Both companies have been dot-com laggards. Armstrong, who cut his teeth as a key Google
- For starters, you need both companies and their shareholders to agree on the exit strategy. Both companies have been disappointments in recent years, but buyouts will require juicy premiums. It would be heresy for Yahoo! to punch out at a much lower price point than what Microsoft
(Nasdaq: MSFT)offered two years ago. AOL is only trading marginally lower than where it was when Time Warner (NYSE: TWX)decided to spin it off late last year, but it, too, would require a healthy markup.
- Yahoo!'s market cap is roughly eight times greater than AOL's valuation. How would you convince Bartz and everyone at Yahoo! to cede power to the leadership of a far smaller company?
- Consolidation is a major part of Web portals' growth strategy these days. A combined Yahoo! and AOL would have plenty of money at its disposal, especially if Yahoo! unloads its Asian investments, but sometimes you need the equity kicker to seal the deal. There are compelling properties -- including IAC's
(Nasdaq: IACI)Ask.com -- out there to be had. Taking AOLhoo! or YahAOL private would make it harder to go shopping.
Go ahead and shack up, Yahoo! and AOL. But please do it in public, so that investors can have a say -- and a play -- in your ultimate direction.
Do you think AOL and Yahoo! would make a good merger? Post your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarriz wonders if AOL will ever party like it's 1999. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and it's got mail.