• by Joe Mandese , December 22, 2006

Are big online portals AOL and Yahoo about to go into play, and could a major traditional media company like, say News Corp. or Comcast, be preparing to buy one or the other? That's what Wall Street is beginning to buzz about, according to a report released Friday morning by the equity research team at Merrill Lynch.

"We believe there are several trends that could push either AOL or Yahoo! Towards a major transaction, with each other or with another competitor," the securities report speculates. "In the past year, AOL has shifted towards an advertising-supported model, but is still losing significant share in search. Likewise, Yahoo's technology and revenue results have fallen behind Google, resulting in a lagging stock performance."

The note predicts those trends could lead AOL and/or Yahoo to explore a "transformative transaction" over the next 12- to 24-months, and likely scenarios include:

* An AOL-Yahoo "tie-up," which Merrill Lynch deems the "most logical" outcome.

* An acquisition by Microsoft (the next most logical conclusion).

* An acquisition by a major traditional media player such as Comcast or News Corp.

While the least likely scenario, Merrill Lynch's analysis is that the math of a traditional media company play "could work," citing News Corp.'s previous acquisition of MySpace.com.

"News Corp. and Comcast are two media companies that have been speculated as potential candidates to purchase Yahoo!. Although we understand the rationale for each, neither appears likely," writes the firm, throwing water on the traditional media scenario. "Of the two, we see more logic in a possible News Corp.-Yahoo combination."