Shh, No One Tell Yahoo About the Buyout — AOL Wants It to Be a Surprise

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Photo: Mario Tama/Getty Images, Daniel Acker/Bloomberg via Getty Images, Justin Sullivan/Getty Images

Google may be the 800-pound gorilla in the room (sporting an "Okay, so maybe I'm a wee bit evil" sandwich board), but the company's success is having a mellowing affect on the corporate giants it has left standing. Yesterday, Facebook and Microsoft, an early investor in the social network, teamed up to get a leg over Google with a new feature that let Facebook users see information and recommendations from their friends in Bing search results. And today brings the rumor that Yahoo and AOL might combine, which would bring the companies more heft in competing with the gorilla who ate their online advertising revenues. The Journal reports that a number of private-equity firms, including Silver Lake Partners and Blackstone Group, are exploring making a deal with AOL to buy Yahoo or take the company private. If you see someone from Yahoo, just treat it like you would a surprise party. "The people familiar with the matter cautioned that these discussions — involving private-equity firms, AOL executives and financial advisers — are preliminary and don't yet involve Yahoo."

AOL, which currently has a market capitalization of $2.68 billion, is much smaller than Yahoo's estimated $20.56 billion market value, a large percent of which comes from its 40 percent stake in the Chinese business-to-business. Which is one of the reasons Andrew Ross Sorkin says this all sounds like "pie in the sky" talk to him: "A deal is not happening anytime soon."

Sorkin says that at least one of the private-equity suitors named in the Journal, Blackstone Group, has already passed on the deal. Selling its stake in Alibaba could bring Yahoo's value down to a more affordable $8 billion, but if Alibaba, one of its most valuable assets, can make more in a public spinoff, why sell now? There's also the matter of Yahoo CEO Carol Bartz. She's been able to cuts costs, and though revenue is still lagging — particularly in areas that should be stronger, like display advertising — she has promised a turnaround if she's given more time.

But, notes Sorkin, "That doesn’t mean bankers haven’t been running the numbers." Or that AOL's Tim Armstrong and Silver Lake aren't intrigued by the possibility.

AOL, Firms Explore an Offer for Yahoo [WSJ]
A Sale of Yahoo? Not So Fast [NYT]