Yahoo AOL Merger Is a Bad Idea

15 10 2010

It is reported by the Wall Street Journal that private equity firms together with AOL are looking to merge AOL and Yahoo. We have disputed at one time that there is a need to take decisive actions to boost Yahoo’s stock price, and failing that private equity should look into buying Yahoo, and merging these two companies AOL and Yahoo, who are fundamentally and secularly challenged companies, is a bad idea. We know that two wrongs can never make a right. Any attempt by a private equity firm to buy Yahoo! or merge it with AOL will force MSFT (Microsoft) into making a full offer for yahoo.

There are several reasons why merging Yahoo and AOL is a bad idea:

  • This idea is bad due to that fact that there are no obvious scale benefits to merge these two companies in display, research or social networking.
  • Getting Yahoo’s board to agree to this will be tough although given the disasters handling of the Microsoft offer; they may be forced to seriously consider this one.
  • AOL is partner of Google and Yahoo is partner of Microsoft, and both are long term contracts.
  • Cost synergies will not be accretive that are adequate to add material value to the merged entity.

The fact is that both companies particularly Yahoo have failed to show any persuasive proof that they understand what the real-time web is about, or how they are going to get from where they are (which particularly in AOL’s case, is not a good place), and where they need to be in order to take advantage of that basic shift in the web functions. It’s true that both companies still have millions of unique monthly visitors, and advertising-based businesses that cater to those clients, but the future of that kind of platform is hazy.

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