Yahoo! board gives AOL talks a green light

Yahoo! Inc.'s (NASDAQ: YHOO) new board gave management the go-ahead to negotiate with Time Warner (NYSE:TWX) to buy AOL or create a broad partnership with it.

The FT reports that, "According to one person familiar with the company's thinking, the Yahoo board approved a new round of discussions with AOL, though active deal negotiations are not underway at this stage." Some analysts believe that Microsoft Corp. (NASDAQ: MSFT) would never allow AOL to fall into Yahoo!'s hands and would outbid the portal company to keep it from gaining any edge in the battle to be much larger than Redmond's MSN operation.

Yahoo! is such a distant second in the internet search business that it might as well try to build its display advertising base. Most audience measurement firms put AOL's monthly unique audience at well over 100 million visitors. That would increase Yahoo!' audience by about 80%.

Yahoo!'s board may be dodging two practical considerations. One is that AOL's advertising revenue is not growing quickly and any buyout might actually hurt Yahoo!'s own growth rate. The other is that putting the two companies together could take a year or two. Each has so many properties and so many brands that meshing them and the people who run them could be a mammoth mess.