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Thursday, March 28, 2024

AOL Pushing For Yahoo Buyout

Courtesy of Benzinga.

According to a Reuters story, AOL (NYSE: AOL) CEO Tim Armstrong has been meeting with large shareholders in recent weeks in an effort to convince them of the merits of a sale to Yahoo (NASDAQ: YHOO). Reuters quotes a shareholder as saying, “The focus in the meeting has gone from a year ago of being around the fundamentals to now being how could you carve this up, what are separate assets worth, are there ways to sell off the business to extract value from them.”

Armstrong believes that a merger between the two companies could result in between $1 billion to $1.5 billion in savings due to overlaps and synergies between the respective businesses. AOL shares have lost more than 40% in 2011 and the company’s market cap is currently only $1.5 billion, which is a testament to AOL’s significant struggles as a free standing online media firm. In the absence of some sort of strategic transaction, many industry insiders doubt that AOL will ever be able to gain ground on heavyweights such as Google and Facebook with regard to attracting ad dollars.

Some observers are suggesting that a deal with Yahoo (YHOO) would be a way for Armstrong to wriggle out of his current job without losing face. “As far as Armstrong’s desire for an exit, he doesn’t want to be doing what he is doing 18 months from now. He wants to be out,” said a source familiar with Armstrong’s thinking. “He’s an ambitious sort of guy and AOL is such an afterthought. But he would definitely put his hat in the ring to run a combined Yahoo/AOL.”

While there are clearly synergies between AOL and Yahoo, and a deal has been talked about for years, the fact of the matter is that both companies are second class. A merger or buyout would be kind of like a AAA minor league baseball team merging with a club from A ball. Yahoo is a mess and has been for years. Most of the company’s value lies in its Asian assets, including Alibaba and Yahoo Japan. The actual Yahoo properties that most Americans are familiar with aren’t worth that much.

The company recently dismissed its CEO Carol Bartz, and major shareholders are pushing for Yahoo to sell itself or undertake some other strategic transaction which could unlock value. It is extremely doubtful that these shareholders would be thrilled with a buyout of a rapidly deteriorating AOL, unless it was a part of a larger transaction. Both companies stocks have been active in the wake of these reports, with AOL rising 7.53% to $14.14 and Yahoo gaining 1.71% to $16.04.

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