The financial and tech communities responded with a resounding “I doubt it” to reports that the still-under-reconstruction portal AOL was circling the listing Internet giant Yahoo for a possible merger.
If anything, Yahoo ought to buy AOL, said analysts of every stripe. But either way, it read among the cognoscenti like rumors floated by restless shareholders understandably concerned over stability and future growth at the home of CEO Carol Bartz.
Despite the skepticism, everyone recognized why such a deal might make sense.
“They both operate online media properties which attract advertisers by their sheer size and reach; they can cut costs by eliminating duplication (mail, homepage, IM, sports, finance, ad network, etc.); they would gain more leverage with search and media partners,” wrote Tech Crunch, citing similar views by Business Insider's Henry Blodget.
But for many, the merger dynamic seems upside down.
Yahoo is valued at something like 10 times the value of AOL – about $21 billion to the latter’s $2.65 billion.
Wrote Kara Swisher at AllThingsD: “AOL is still huffing and puffing as a tiny player in a world of giants.”
TechCrunch’s Erik Schonfeld agreed. “Yahoo buying AOL, rather than the other way around, would make even more sense and be a lot cleaner. (Armstrong can still become CEO, and Bartz can become chairman),” he wrote.
“But there are downsides as well. While Yahoo and AOL are distracted with firing people and integrating business units and backend technologies for at least two years, the Internet will continue to move ahead without them. Big mergers rarely work out well.
Meanwhile, reports that NewsCorp was interested in buying Yahoo also seemed more like a trial balloon than a real possibility. A NewsCorp insider said that they were not aware of any ongoing talks, and that pressure was coming from Yahoo shareholders more than strategic interest by Murdoch's empire.
Wall Street analysts were equally unenthusiastic overall about a merger between AOL and Yahoo.
Piper Jaffray analyst Gene Munster wrote in a note to investors: "In concept, we agree that there would be synergies between Yahoo and AOL, but we believe the reality of the situation is that it would be easier for Yahoo to acquire AOL outright than for the reverse to happen with PE involvement,"
Analysts pointed out the possible synergies the two companies could produce. But none of them seemed optimistic that a deal could actually get to the finish line.
Benchmark Co. analyst Clayton Moran said in the Wall Street Journal: "I'm skeptical a deal gets done, or if it does, that it creates material value above the current stock price." =
"I don't know that just making them bigger does anything. I don't know that making them smaller does anything," Pacific Crest Securities analyst Steve Weinstein told Reuters. "Operationally that does nothing, that's just moving the pieces around the board."=
And analyst Jordan Rohan said in Barron’s:
“While there are many things that have changed that make a potential Yahoo buyout more likely to happen today, there are a couple of big factors that make the potential buyout a low probability event, in our view,” he writes.
“Those factors are the lack of availability of financing for a full $30 billion takeout, which would simplify the takeout process significantly, and the incentive that Yahoo management has to wait for a liquidity event at Taobao's, which addresses the valuation gap. We remain neutral on Yahoo! and do not believe the current talks will result in a transaction, at least for now.”
Overall, “by leaking the details of the proposed deal to the WSJ, the people who want to make the deal happen are presenting the idea directly to shareholders rather than privately discussing it with Yahoo first. That fact alone makes it a long shot," wrote TechCrunch.
“Great deals that make sense financially usually get worked out first in private between the two companies merging. Public trial balloons like this one go up when shareholders are [so] frustrated with a company.”
Brent Lang, Martina Suess and Katrina Norvell contributed to this article.
