More rumors AOL will be bought by Microsoft, maybe

Often the source of a rumor is as important as the rumor itself. Some sources simply have more credibility than others. Reuters has reported that talks to make either Microsoft Corp. (NASDAQ: MSFT) or Yahoo! Inc. (NASDAQ: YHOO) the new owner of Time Warner (NYSE: TWX)'s AOL are heating up.

Now, The Wall Street Journal say that negotiations between Time Warner management and Microsoft brass have become more urgent.

The paper writes, "Microsoft Corp., seeking an alternative to a deal with Yahoo Inc., is planning to meet executives from Time Warner Inc.'s AOL today to advance discussions on a possible tie-up."

Of course, the rumors has the strength of making sense. For Microsoft or Yahoo! to get bigger in display advertising and have more online consumers using their search services, AOL is the only other really large internet property available. And Time Warner management has strongly hinted that it would like to find a home for the portal company.

One thing is certain. Yahoo! will not be AOL's buyer. The likely proposal from Yahoo! would be for it to buy AOL by giving Time Warner a big piece of ownership in the combined company. That would leave TWX with perhaps a third of the public stock in Yahoo. Selling off a stake of that size would be nearly impossible. Time Warner might as well keep AOL under those circumstances. Also, Yahoo! management has been so maladroit at running its own affairs that Time Warner should have very little confidence that the group could run a larger operation.

Time Warner will look at Microsoft as AOL's buyer for two key reasons. First, it has cash; and second, it will not allow AOL to fall into Yahoo!'s hands to give the. No. 2 search company the advantage of improving its position in that part of the online industry.

Douglas A. McIntyre is an editor at 24/7 Wall St.