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AOL Steps Up Yahoo Talks

The Wall Street Journal (link: reports that Yahoo and Time Warner's AOL have taken merger discussions to the next level, and that AOL is now preparing a proposal that will be taken to Yahoo's board and shareholders. Under the deal, AOL would be folded into Yahoo, with Time Warner taking a sizable chunk--perhaps one-quarter to one-third--of the combined company. Even so, the unnamed people familiar with the situation still believe a Yahoo purchase by Microsoft is the saga's most likely outcome.

Silicon Alley Insider's Henry Blodget thinks a Yahoo-AOL merger makes a lot more sense than Microsoft-Yahoo, as the combination would solidify Yahoo's domestic market position as the No. 1 seller of display ads, but the addition of ad networks like Tacoda (a behavioral targeting network) and (an ad network specializing in remnant inventory) would help establish the combined company as the No. 1 third-party network business, too.

The combination would make the company a "must-buy" for advertisers, providing a much-needed alternative to Google. Other key unions would be AOL's IM platforms AIM and ICQ with Yahoo Messenger and AOL's "ghastly" email platform with that of Yahoo Mail. And while integration would prove problematic (though no more so than with Microsoft) Yahoo could cut a lot of redundant cost, making AOL way more profitable than it is today.

Read the whole story at Alley Insider »

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