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Why AOL Won't Save Yahoo From Microsoft
I spoke with people who know AOL's situation inside and out, but who can't talk about it on the record because of their positions. I asked if it is feasible that Time Warner might strike a deal to sell AOL to Yahoo, as has been widely speculated today. The answer: Basically, it can't happen.
Several reasons why. For starters, an AOL deal would not give Yahoo shareholders money for their stock. In fact, if such a deal were announced and Microsoft's bid went away, Yahoo shares would fall drastically, maybe in half, these individuals speculated. Another more subtle reason: AOL is powered by Google search now, which these people estimated brings in 30% more revenue than if AOL was running on Yahoo search. Certainly AOL couldn't become part of Yahoo and still run on Google, so the second AOL and Yahoo merged, AOL would flush hundreds of millions of dollars in search revenue down the toilet.
Strategically, Yahoo-AOL makes a ton of sense. They would get scale, efficiencies, and compliment each others' reach. But financially, with Microsoft's bid on the table, such a deal apparently makes zero sense.
Which seems to leave Yahoo in Microsoft's arms -- and AOL stranded.
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