Citi Doubles Down On Time Warner (TWX): Yahoo (YHOO) Will Buy AOL Ad Business

If you bought Time Warner (TWX) a year ago, you’re down 25% (and have probably contemplated stoning Jeff Bewkes). But Citigroup is now adding TWX to its “Top Picks Live!” list.

Why? Because Citi thinks that Jerry Yang (or whoever’s in charge next week) and Yahoo are going to ride in on a white horse and scoop up AOL’s ad business:

We believe investors may not be giving the equity enough (any?) credit for a potential sale of AOL’s advertising business. Recent 8-K filing from Yahoo! suggests the firm may be interested in pursuing M&A, including a potential acquisition of Time Warner’s AOL advertising business.

We estimate that AOL’s ad business–including Platform A–might be worth $8-$10 billion. And if Yahoo doesn’t buy it, Microsoft might.

If Yahoo is the buyer, however, we doubt it will pay 100% cash, however. So don’t bet on Time Warner suddenly being richer to the tune of $10 billion in cash.

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