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.

Many Wall Street analysts thought that when Microsoft (NASDAQ: MSFT) lost its bid for Yahoo! (NASDAQ: YHOO) that it would take the $45 billion it was going to spend and buy other online companies.

Think again. Microsoft's management says it is not so. According to the FT, "Steve Ballmer, chief executive, scotched talk that Microsoft would turn to a `plan B' of other acquisitions to boost its online presence." Ballmer feels that buying more internet companies will not improve its share of the search market. He is not simply after more pageviews.

The news is probably disappointing to several large online companies. AOL, Facebook, Monster (NASDAQ: MNST), and Digg might all have been part of a Microsoft plan to improve the size of its presence on the web.

The Microsoft comments send another message. Search is important. Display advertising is not. Search is an efficient way to make money. Display advertising's best growth years are behind it.

If Ballmer is right, the online world is about to go through a major upheaval.

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

Depending on who is doing the measuring, The Weather Channel is one of the most widely watched 24-hour cable networks. Weather.com is among the top 15 or 20 most visited websites in the U.S. Since there are very few media properties of this size on the block, they are especially valuable.

Landmark, the owner of The Weather Channel, has put it on the block. It wanted $5 billion. The rumors are that it will get $3.5 billion on a good day. The last two companies kicking the tires were Time Warner (NYSE: TWX) and NBC Universal. TWX has apparently dropped out.

Although the media conglomerate has over $9 billion in money coming in as it finishes its spin-off of Time Warner Cable (NYSE: TWC), management cannot afford to be viewed as overanxious. Paying too much for a large asset would not make the new era of shareholder value under recently appointed CEO Jeff Bewkes look like it is off to a terribly good start.

According to The Wall Street Journal (subscription required), "Time Warner withdrew after Landmark told the media company it needed more time to make a decision." That probably means the seller is holding out for more cash.

For Time Warner, it is a shame. Its cable networks, CNN and Turner, do particularly well. Putting The Weather Channel with them would have built that business. Online, TWX has big properties like AOL and CNN.com, making Weather.com a good marriage.

It all made sense, except the price.

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

Time Warner Inc. (NYSE: TWX) and Time Warner Cable Inc. (NYSE: TWC) have finally announced approval of an agreement that will result in the complete legal and structural separation of the two companies.

Here are the guts of the deal:

• Time Warner exchanges its 12.4% interest in TW NY Cable Holding Inc., a subsidiary of Time Warner Cable, for 80 million newly issued shares of Time Warner Cable's Class A common stock, increasing Time Warner's ownership stake in Time Warner Cable's common stock from 84% to 85.2%;
• Time Warner Cable declares a one-time dividend of $10.27 per share for a total of about $10.9 billion payable immediately prior to completion of the separation;
• Time Warner receives $9.25 billion from this dividend;
• Time Warner Cable expects to fund the one-time dividend through its existing revolving credit facility and $9 billion from a new, committed two-year bridge term financing from a syndicate of banks;
• Time Warner converts its Time Warner Cable Class B common shares (each Class B common share has the voting power equivalent to 10 Class A common shares) into Time Warner Cable common shares on a one-for-one basis in a recapitalization that results in Time Warner Cable having one class of common stock;
• Time Warner will distribute its entire ownership stake in Time Warner Cable to Time Warner stockholders in a tax-efficient manner; the exact form of the distribution will be determined shortly before the closing of the transaction, based on market conditions.

This should be the start of that value unlock, and this will also clarify the balance sheets of both companies.

In a recent newsletter article, I generated an $18 scenario with a $20 target on a slightly enhanced basis. In early to mid 2009 as the economic slowdown should have been worked through, I even see a $22 to $24 upside scenario.

Jon Ogg is the editor of 24/7 Wall St.'s Special Situation newsletter.

Yahoo! (NASDAQ: YHOO) shares traded at $29.70 after hours Friday as it appeared that a buyout deal from Microsoft (NASDAQ: MSFT) was likely. Now that Microsoft has walked away after offering $33, where does the Yahoo! stock price go?

Probably to about $22. Here are the reasons why:

1. Yahoo! traded at $19 the week before the offer.

2. Yahoo!'s earnings for Q1 were only modest. So were its forecasts. No one on Wall Street believes the company's aggressive three-year projections. This actually puts some downward pressure on the stock.

3. Microsoft may come back. Their new offer, probably several weeks off, if they make one, will almost certainly be below its initial $31 price point because Yahoo!'s shares will have fallen. A new MSFT offer will probably be in the $25 to $27 dollar range. This should give the stock some support.

4. Yahoo! could outsource some of its search functions to Google (NASDAQ: GOOG) and potentially save hundreds of million of dollars in personnel. Google does a better job of making money from search ads, so a transaction with the search company could also improve revenue. This should help keep Yahoo!'s share price from collapsing. There is a chance the the federal government would view a deal between the two largest search companies as anti-competitive.

5. There is still a chance the Yahoo! could do a transaction with News Corp (NYSE: NWS) for MySpace or Time Warner (NYSE: TWX) for AOL. It is tough to handicap what this would do to the Yahoo! shares.

Look for the Yahoo stock to settle at $22 in the next week.

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

Microsoft (NASDAQ: MSFT) may be much better off by not overpaying for Yahoo! (NASDAQ: YHOO). To pay almost $45 billion for a company that's really struggling seems extreme -- especially since I think Time Warner (NYSE: TWX) will spin out AOL in a few months. Microsoft could buy AOL much, much cheaper than Yahoo.

AOL brings to the table both traffic and many properties, including BloggingStocks! The problem is that revenue is declining and so are unique visitors, down from 110 million average unique visitors in the fourth quarter, to 109 million in Q1.

I think that with Microsoft's focused management, it could achieve the same turnaround at AOL that it is anticipating achieving with Yahoo, only it would not have to spend $45 billion.

Some analysts have said that AOL is a consolation prize for the loser in the Yahoo! battle. I think Yahoo! is the booby prize and AOL might just be the better deal.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 5/1/08

The New York Times reports that Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer may raise his bid for Yahoo Inc. (NASDAQ: YHOO) to $32.

That number may not be enough. Currently, Yahoo is valued at $29.06 a share but Microsoft is considering an offer in the $32 or $33 range. However, that's short of the $35 to $37 range that Yahoo shareholders want for their holdings.

Yahoo continues to hold out hope for remaining independent, including a combination with the BloggingStocks parent, AOL, a unit of Time Warner (NYSE: TWX) and a search advertising partnership with Google (NASDAQ: GOOG). And so the drama continues.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Investors don't know what to make of Time Warner Inc.'s (NYSE: TWX) results.

First, shares rose this morning as investors gave a thumbs up to Chief Executive Jeff Bewkes' plan to dispose of the media conglomerate's cable television business. Then, they fell after the earnings conference call. Perhaps investors were expecting news on a deal for AOL. Otherwise, the parent of CNN, Time magazine and Warner Brothers posted mediocre quarterly results (pdf).

"We've decided that a complete structural separation of Time Warner Cable Inc. (NYSE: TWC), under the right circumstances, is in the best interests of both companies' shareholders, Bewkes said in the earnings release. "We're working hard on an agreement with Time Warner Cable, which we expect to finalize soon."

While in Silicon Valley recently, I had a chance to meet up with Tony Conrad, who is a venture capitalist. We talked about one of his ventures, Sphere, which got its start in 2005.

Well, now the company is a part of Time Warner Inc. (NYSE: TWX)'s AOL (the price tag of the acquisition was not disclosed).

At the core of Sphere is compelling technology -- that is, an advanced search system. However, the issue was: what to do with it?

Want to see what AOL looks like in Mandarin? Check out the company's beta launch of its new web portal serving Taiwan.

A division of Time Warner, Inc. (NYSE: TWX), AOL also noted that it will add new content and features in the coming months designed for the Taiwanese audience. Content included right now is Entertainment and Finance, plus a technology channel featuring Engadget in Chinese. It also has a search feature in Chinese, which is powered by Google (NASDAQ: GOOG), like the content search elsewhere. It is using Truveo.com for video search.

AOL is developing content partnerships with regional pubs, including United Daily News (udn.com) and Phoenix New Media. AOL is using its worldwide distribution pact in place with Hewlett-Packard (NYSE: HPQ) to deliver a co-branded local language portal and search site for HP users in Taiwan.

Taiwan is not the last country in the pipeline. AOL has launched 18 country-specific portals and plans to have a total of 30 countries by the end of 2008. The H-P bundling software is one of the key metrics it will be using.

There was an interesting announcement that came out this week. It seems that the triple-play package of cable, high-speed internet, and telephony are coming to America's largest retailer.

Wal-Mart Stores, Inc. (NYSE: WMT) and Time Warner Cable (NYSE: TWC) are partnering up to allow Wal-Mart customers to select and purchase various Time Warner packages at nearly 700 Wal-Mart store locations.

The store offerings will be in the electronics department or "Connection Center" locations inside the stores. These locations will explain and offer the packages, possibly with a joint purchase of a new high-definition television.

Time Warner believes this will give customers convenient and easy access to its broadband, high-definition cable, and digital phone services. After seeing VoIP offerings in the past, this might not be all that unexpected. But the triple- play package isn't exactly a bare-bones pricing, even if it ultimately does save money for consumers who use all three services under one provider.

For the former "Always Low Prices" retailer, it seems that the old dial-up or low-priced DSL internet access would have been the highest priced offering. Either times are a changing, or US web access markets are saturated.

We are still awaiting the final verdict from Time Warner Inc. (NYSE: TWX) and Jeff Bewkes regarding its majority stake in the cable operator.

This morning's papers are full of news about various combinations of Yahoo! Inc. (NASDAQ: YHOO) with other companies. The New York Times reports that there are a few new options in addition to the $44.6 billion Microsoft Corp. (NASDAQ: MSFT)-Yahoo deal, which may be designed to get Yahoo a higher bid:

• Microsoft-News Corp. (NYSE: NWS)-Yahoo. Under this deal Microsoft and Murdoch would team up to create a combination of Yahoo, Microsoft's MSN and News Corp's MySpace;
• Time Warner Inc. (NYSE: TWX) (BloggingStocks' parent)-Yahoo. Bloomberg News reports that this deal would combine AOL and Yahoo -- specifically Yahoo would gain control of AOL, receive an investment from Time Warner, and give up a 20% stake in the combined entity. And Yahoo would repurchase several billion of its shares in the mid-$30 range; and
• Google Inc. (NASDAQ: GOOG)-Yahoo. This is an older idea -- outsourcing Yahoo's search advertising system to Google. But the two began a two-week test in which Yahoo will use Google's search advertising system to deliver ads that appear alongside Yahoo's search results. The test will involve searches conducted in the U.S. on Yahoo.com and will pertain to no more than 3% of all search queries.

How should Yahoo's board think about what to do? This is the question I posed my students for their mid-term paper in my course on Strategic Decision Making. The students handed in their papers a month ago, before all these new developments. But in my view, Yahoo's board should evaluate the options based on their pros and cons from three perspectives:

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.

Time Warner Inc. (NYSE: TWX) stock is declining after AOL did not perform well in a report detailing market share in the global web search market. According to comScore data, AOL, a division of TWX, pulled in a 4.9% market share in February, far behind Google (NASDAQ: GOOG), Yahoo (NASDAQ: YHOO) and Microsoft (NASDAQ: MSFT). However, data across the industry has led many analysts to believe that the market for web search is maturing, and that there is little growth to be found in the industry. This could be a bad sign for TWX, whose once-dominant AOL division is far behind industry leader GOOG with little hope at catching up. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TWX.

After hitting a one-year high of $21.97 in June, the stock hit a one-year low of $13.65 on Monday. This morning, TWX opened at $13.98. So far today the stock has hit a low of $13.94 and a high of $14.35. As of 11:30, TWX is trading at $14.33, down 8 cents (-0.5%). The chart for TWX looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $17 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make an 11.1% return in four months as long as TWX is below $17 at July expiration. Time Warner would have to rise by more than 18% before we would start to lose money.

TWX hasn't been above $17 by more than a few cents since December and has shown resistance around $16.50 recently. This trade could be risky if the US economy turns around quickly, but even if that happens, this position could be protected by resistance TWX might find at its 50 day moving average, which is currently around $16.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in TWX, but he does write for a financial blog on AOL.

Time Warner Inc. (NYSE: TWX) hit a new 52-week low on Friday and again this morning. Shares traded as low as $13.65 today right after the open. This afternoon, shares are back up around $13.90, but that is just the level of last Friday's low. Since last Monday, shares have dropped from $14.84. At the beginning of the year, share price sat at $16.51. The high in 2007 was $21.97.

If you look at the current situation at Time Warner compared to other media stocks and other cable stocks, the one-third loss in share price from last year looks systemic to the industry rather than symptomatic of problems at TWX.

In other words, the market and economic trends seem more of the problem plaguing the shares than the actual strategy -- at least in recent weeks. If you look at the last decade, you get a different picture. But here I'm writing about the recent weakness in the stock.

For one thing -- the company is no longer spending billions to repurchase stock. In this environment it shouldn't. Media is being affected by a slowdown in spending and Time Warner will need the cash and the stock for strategic moves.

Ultimately, the value of TWX is going to boil down to two issues: What will the parent do with its stake in Time Warner Cable, Inc. (NYSE: TWC)? It looks like Bewkes is going to unlock more of the underlying value in cable. What is going to happen to AOL? So far, it looks like the content side and advertising side are both going to stay with the parent and the dial-up and access side of the business will be sold off.

I studied a longer-term chart and this last drop to under $15 has progressed to where shares are at four-year lows. Back in 2002 to 2003, shares traded under $11.

Today's economy is still weakening and the current corporate desire to unload billions of dollars in assets is far different than we were seeing in early 2007 and 2006. Time Warner shareholders saw past gains from cost cuts and new efficiencies. But the rest will have to come from solid business decisions and strong leadership.