AOL could torpedo Microsoft-Yahoo! deal (YHOO, TWX, MSFT, GOOG)

Jerry Yang may have just figured out a way to not hose Yahoo! (NASDAQ: YHOO) shareholders. The Wall Street Journal is reporting that Yahoo! and Time Warner Inc.'s (NYSE: TWX) AOL may be close to a tie-up to combine their Internet operations. According to the report, Time Warner would make a large cash investment into Yahoo! and then Yahoo! would repurchase billions of dollars worth of shares in the mid-$30's. Just keep in mind that as of now, this all only an unverified WSJ story; nothing has been released by the companies.

This would thwart Microsoft Corp. (NASDAQ: MSFT) in a deal valuation, or at least that would be the intent. Interestingly enough, there were headlines today tying Yahoo! into running some test search-ads via Google (NASDAQ: GOOG). As long as we're talking about your cousin's sister's brother, Google also owns a 5% chuck of AOL via a prior $1 billion investment. In order to monetize the deal, AOL would have to have a liquidity event of some sort, although by now the time may have passed.

There are no assurances that shareholders would go along with an AOL/Yahoo! combination, nor are there assurances that this would net more money to Yahoo! shareholders in the end. Time Warner shareholders might even potentially be an issue. Until there are more facts out other than the Journal's un-named sources, it's just all hearsay anyway.

Frankly, it's a wonder that Bill Gates hasn't tried to get involved in this deal with his own money. He could always say he's too young to go do charity.