Bankers balk at AOL-Yahoo deal scenario

A decade ago, America Online Inc, as the Goliath of the nascent Internet world, was the protagonist in a bold and ultimately quixotic deal -- its much-hyped merger with Time Warner.                    

Now as AOL Inc, the shrunken successor to the onetime dialup behemoth, struggles to turn around its business as a standalone company, it is being cited as the protagonist in another transaction that has tech bankers buzzing: a private equity-aided takeover of much larger portal Yahoo Inc.                                             
 

But there is a key difference. AOL negotiated the all-stock deal with Time Warner from a position of strength. Any Yahoo takeover would be done from a position of weakness. Some bankers and analysts are even calling it a desperation move.                        
 

In recent weeks, there has been speculation that AOL is teaming up with several private equity firms to acquire Yahoo. A potential deal, however, would be contingent on Yahoo, the No 2 US search engine, selling its prized Asian assets which include a 40% stake in China's Alibaba.                                           
 

Several senior tech and media bankers scoffed at the notion of a tie-up between AOL and Yahoo, and suggested that AOL is frantic in finding alternatives for its lackluster business.                     

"AOL was trying to get Yahoo to buy them a while ago and Yahoo said ''no interest -- you are not even worth it," said one banker. "AOL is stirring the pot here a little bit."                                           
 

The banker said AOL could be publicly implanting the idea in order to start provoking Yahoo's shareholders to agitate the company for a sale. AOL declined to comment.                                        
Any deal would likely be a far cry from the $47.5 billion, or $33 a share, offer that Microsoft Corp made for Yahoo in 2008 and which was rebuffed by Yahoo's co-founder and then-CEO, Jerry Yang, analysts and investors said.                                            
 

With AOL's market cap close to $2.67 billion, relative to Yahoo's $21.6 billion, the banker said AOL would benefit from having private equity stand behind it in acquiring Yahoo, making it a much "bigger and more relevant company."                                            
 

But another banker warned that an AOLprivate equity deal is "purely an exercise ... testing the waters."