Why Time Warner (TWX) shareholders hate a Yahoo! (YHOO) deal

There has been pressure on the shares of Time Warner (NYSE: TWX) for a couple of days now. Today the stock is down nearly 30 cents to $14.09 after losing about 40 cents yesterday. Lehman put out a rough report on media stocks yesterday, which did not help the company's cause.

The real reason that Time Warner shareholders may be sullen is that they are concerned about a possible Yahoo! (NASDAQ: YHOO) buyout of AOL, rumored to be in the works. Analysts think that AOL may be worth $10 billion. Most experts considering such deal figure see Yahoo! giving Time Warner a 30% stake in Yahoo! in exchange for all of the AOL assets.

The deal is a bad one because Yahoo!'s stock is a poor currency. With such a large position, it would be nearly impossible for Time Warner to liquidate its stake. The news of an AOL deal in place of a Microsoft (NASDAQ: MSFT) buyout of Yahoo! at $33 would almost certainly hammer Yahoo! shares and might even push them below $15.

The most significant concern for investors holding Time Warner stock is that Yahoo! has demonstrated that it is badly run and still struggling to significantly improve its revenue growth. Getting a piece of a broken company may get AOL a new home, but what Time Warner shareholders would get in return would probably not be worth much.

Douglas A. McIntyre is an editor at 247wallst.com.