So bets Merrill Lynch analyst Jessica Reif Cohen, in a note titled “Is 2007 the year AOL and Yahoo are in play?” last week. She said that AOL and Yahoo could be open to a tie-up in 2007, spurred by AOL’s falling market share in Internet search and Yahoo’s lag behind Google.
“We believe there are several trends that could push either AOL or Yahoo towards a major transaction, with each other or with another competitor…Although not without its problems, we believe that an AOL-Yahoo combination is one of the more logical combinations in this arena.” Also, Microsoft could be a suitor for either of these companies, the note days.
Due to their overlapping businesses, cost savings would be considerable in any combination involving Yahoo!, AOL or Microsoft, particularly in overhead and marketing, research & development and, in the case of a Microsoft-Yahoo merger, ad platforms and technology investments,said the note.
Merrill also highlights this tidbit: “our understanding is that AOL’s current contract with Google has a change in control clause that would allow either [Microsoft] or Yahoo! to move its traffic onto their platforms.” Update: Here’s this from the SEC filing a year ago after the Google-AOL deal: Google will have the right to sell its new 5 percent stake in AOL as soon as July 1, 2008. Also this language: “Under certain circumstances involving the transfer or issuance of HoldCo equity interests or the transfer of AOL equity interests by Time Warner, we can elect to have Time Warner or HoldCo purchase our equity interest in HoldCo at an appraised fair market value. We will also have the right to tag along on sales by Time Warner of HoldCo interests, and Time Warner may require us to sell our interests in certain circumstances.”
Other potential acquirers of Yahoo! and AOL include Google, News Corp. and Comcast.
For a chart of the possible big-ticket acquisition plays in 2007, see this chart…click on thumbnail below.