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AOL's Armstrong Posits Yahoo Merger

Still soft on the idea of a Yahoo merger, AOL head Tim Armstrong has reportedly been selling shareholders on the idea for weeks. 

As sources tell Reuters, Armstrong is convinced that a sale to Yahoo would amount to $1.5 billion in “cost savings,” i.e., layoffs on scale that would make previous cuts at both companies look tame by comparison. 

“While Yahoo's own strategic review has bumped AOL to the back burner for many on Wall Street, Armstrong is still trying to drum up shareholder support for a deal with Yahoo, presenting it as an alternative to going it alone as an Internet media company,” Reuters writes. 

“Since AOL was spun out of its disastrous merger with Time Warner, the firm has been trying to remake itself into an Internet media company,” The Inquirer writes. “While many question whether that is a workable plan, the financials can't mask the deep trouble AOL is in, with the company reporting a $11.8m loss for the second quarter.”

“Speculation of a potential deal between AOL and Yahoo has circulated for almost a year although earlier claims indicated that AOL might purchase Yahoo outright, instead of AOL selling to Yahoo,” according to New Media Age.

“While both companies have some valuable assets, such as huge user bases, they both have failed to keep up with Internet trends and are suffering from declining sales,” notes CNet

Despite its problems, CNet adds, Yahoo has been attracting a lot of attention from possible suitors. Those said to be interested in taking over Yahoo include Silver Lake and China's Alibaba, venture capitalists Andreessen Horowitz, and even, once again, Microsoft.

“A deal with Yahoo could serve as a way for Armstrong to bow out gracefully,” Reuters adds. “The idea is not new -- it was floated when Microsoft Corp made a bid for Yahoo in 2008, and resurfaced again last year when AOL hired Bank of America and Allen & Co to review alternatives.”

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