One of Yahoo!'s (NASDAQ: YHOO) plays for showing that it does not need a deal with Microsoft (NASDAQ: MSFT) is to find another large partner for a merger or joint venture. It is becoming more likely that the partner may be either Time Warner's (NYSE: TWX) AOL or News Corp (NYSE: NWS), which owns MySpace.
The structure of a deal with AOL might look very much like the one the firms discussed earlier in the year. According to The Wall Street Journal, "The two companies are talking about a structure they began discussing several months ago -- an arrangement whereby Time Warner would fold AOL into Yahoo and take a minority stake in the combined venture."
A transaction with AOL would give Yahoo! three important advantages. First, it would nearly double the size of its user base, giving it by far the largest audience of any company in the US. Yahoo! would also get AOL's Advertising.com network, the biggest display ad network in the nation. Finally, Yahoo! would get a substantial set of new customers for its search and search advertising businesses.
Wall Street wants to see Yahoo! sold. Any other alternative, including a deal with AOL, is likely to drive its shares down. But, if it wants any chance of staying independent, a transaction with Time Warner may be its only viable alternative.
Douglas A. McIntyre is an editor at 247wallst.com.
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