• by Gavin O'Malley  @mp_gavin, December 2, 2008

Former AOL head Jonathan Miller is reportedly raising money to buy Yahoo, or a portion of the battered and bruised Web giant. The Wall Street Journal broke the news Tuesday, citing people familiar with the matter. The New York Post, however, reported this morning that Miller is raising funds to expand Velocity, and that it was very unlikely he would make a run at Yahoo.

Miller, who now runs venture capital fund Velocity Interactive Group with partner Ross Levinsohn, has been close to discussions between Yahoo and Microsoft, advising both sides on a potential merger.

This summer, Yahoo was even poised to appoint Miller as a board member--as part of settlement to activist investor Carl Icahn's proxy fight--until he withdrew his name after Time Warner said it planned to enforce his non-compete agreement.

Now, Miller is talking to private equity investors and sovereign wealth funds about doing a deal worth roughly $20 to $22 a share to Yahoo shareholders, the Journal reported.

To purchase the entire company, Miller would need to raise $28 billion to $30 billion--a sum that Velocity Group is not likely to raise alone, say analysts.

"It's safe to assume they wouldn't be doing this on their own," said Phil Palazzo, a managing director at AdMedia Partners, an investment bank specializing in marketing transactions. "Velocity's never done anything of this size."

Some analysts on Tuesday were betting against any chance of Miller acquiring a stake in Yahoo, given the depressed economy.

"We think YHOO is attractively valued, but that Miller would have difficulty raising this amount of capital, given the state of the global economy, of capital markets, and of YHOO itself," Standard & Poor's Internet analyst Scott Kessler wrote in a note.

But according to Palazzo, a Yahoo bid could still convince the right investors to pony up even in today's tight credit market.

"Capital is still available for good transactions, and it wouldn't be surprising given Yahoo's continued underperformance compared to the rest of the market," Palazzo said. "The belief is that management has had a lot to do with (its underperformance), but whether the problem is bigger, I can't really say."

Microsoft, which has indicated that it is still open to some sort of deal with Yahoo, was not linked to these latest discussions, according to the Journal.

When all is said and done, however, Microsoft is extremely likely to end up with Yahoo's search business, According to Piper Jaffray analyst Gene Munster.

"Microsoft doesn't have to be involved at the beginning, but Microsoft is going to get a piece of this," said Munster. "There's no question that Yahoo is going to look very different structurally in 12 months than is does today."

Neither Miller or Velocity Group representatives could be reached for comment. A Yahoo spokesman had no comment.

Independent of Miller, various other investors and private-equity firms are reportedly eyeing Yahoo, according to the Journal.

Since February, Yahoo's stock price has plummeted to around $10 a share, putting the company's market capitalization at approximately $15 billion.

Added Munster: "Whether Miller is involved or not, Yahoo is too attractive right now--from a private equity standpoint--to be left alone."