The AOL-Yahoo talks are proceeding, says Kara Swisher. At this rate, we might have a deal in the spring of 2010. Whenever it happens, just pray Yahoo doesn’t blow it again.
Here are the key issues:
- AOL needs to be combined with Yahoo or Microsoft or broken up and sold in pieces. The industry won’t support 4 big generalist companies (as evidenced by Microsoft’s continuing to burn cash), so time is of the essence.
- Yahoo is actually a better fit: The communications systems, blogs, Mapquest, third-party display ad network, etc., could mesh nicely and help Yahoo hold its ground in display. The combination would also give Yahoo a bit more leverage in search for a little while.
- Unfortunately for Yahoo, Microsoft probably won’t let AOL go to Yahoo. An AOL-Microsoft merger would likely be a disaster, but this doesn’t mean Microsoft is going to sit by and let Yahoo take AOL. We expect Steve Ballmer’s standing bid for AOL is “$500 million more than Yahoo’s bid.” And given Time Warner’s need to give shareholders some good news, that $500 million is going to be important. (Microsoft can also pay cash, while Yahoo would have to pay at least partially in stock. After the AOL experience, we expect Jeff Bewkes would prefer cash.)
The Microsoft situation puts Yahoo in a difficult position. Specifically, it makes it more likely that Yahoo will overpay for AOL’s assets, which would be a disaster. Yahoo can’t afford to overpay by so much as a dollar, especially with its own stock at $18.
It’s hard to put specific numbers on the table without knowing exactly what Yahoo is bidding for (just AOL’s content business or access, too?), but if you hear numbers higher than $10 billion, be afraid.
The second way Yahoo can blow this deal is by acquiring AOL and then not aggressively integrating it. If Yahoo and AOL merge, Yahoo’s management needs to be ruthless about eliminating duplication, selling or shutting businesses, and building a cohesive enterprise as quickly as possible. This will require firing many thousands of people, something Yahoo has been reluctant to do in the past.
Bottom line, if a Yahoo-AOL deal is to have a chance of succeeding, the company needs to:
- Avoid overpaying
- Aggressively integrate the two companies.
A mistake on either of these points will put Yahoo even more behind the eight ball.
Business Insider Emails & Alerts
Site highlights each day to your inbox.