New York — Besieged Internet Search Company Yahoo! Inc., confronted with fainted hopes for a takeover by Microsoft Corp., amidst a fresh wave of media reports, is in negotiations to buy Time Warner Inc.’s AOL business, the financial news agency Bloomberg reported last week, quoting unidentified sources, said executives of Yahoo and Time Warner have been meeting over several weeks, but have not finalized the terms.
The Bloomberg report surfaced just days after Yahoo announced that Chief Executive Jerry Yang is resigning and Microsoft Chief Executive Steve Ballmer repeated that he would be open to a deal for Yahoo’s search business, but not an outright acquisition.
Sources familiar with the matters said, Yahoo and Time Warner executives have gathered in the past few weeks and continue to negotiate over terms. Time Warner would hand over AOL’s advertising business to Yahoo in exchange for a stake in the combined company, the sources said, who declined to be named because the talks are not public yet.
The acquisition plans, which would bolster Yahoo’s position in the search market for the so-called display advertising and add subscribers for services such as e-mail and instant messaging, first emerged when Jerry Yang reign, who was attempting to thwart Microsoft’s $47.5 billion bid for the company, but before the Google deal was on the cards.
However, with both the Google and Microsoft propositions having collapsed, it seems that Yahoo is back-peddling and trying to restart the AOL deal.
Yahoo and AOL would also need to cut as many as 3,000 jobs for the deal to pay off, said Jeff Lindsay, an analyst at Sanford C. Bernstein in New York.
“It is difficult and not secure — a merger between companies in similar activities but with very different cultures,” Lindsay said. “It is not the best deal by far.”
Ballmer, while leaving the possibility of a deal open for Yahoo’s search, reiterated that Microsoft has no interest in acquiring Yahoo. On February 1, Microsoft offered $47.5 billion, to acquire Yahoo. In June, however, the Redmond, Washington, software company abandoned the effort.
Besides, Time Warner has long searched for either a dramatic new strategy for AOL or a buyer, in the light of competitor Google’s dominance of the internet search advertising market.
Keith Cocozza, a Time Warner spokesman, and Kim Rubey, a spokeswoman for Yahoo, both declined to comment.
Differences remain between the two sides and an agreement may not materialize; sources familiar with the discussions said.
Yahoo and AOL jointly could save as much as $300 million to $500 million a year with workforce reductions and real estate savings, said Sachin Shah, an analyst with ICAP Corporates LLC in Jersey City, New Jersey.
A deal that values AOL at about $6 billion would make sense for Yahoo, accepting AOL can continue to receive payments from its Internet-search partnership with Google, Lindsay said. Google agreed to pay $1 billion for 5 percent of AOL in 2005 and extended a 2002 accord that lets AOL use Google’s search engine and receive a slice of revenue from ads that appear next to the results.
“If the price is low and they can keep Google, this thing is a moderate to fair deal,” Lindsay said.
Yang’s resignation last week at Yahoo! came after months of falling revenue, fierce proxy battles and a series of botched negotiations that ruined what now seems to have been an exceedingly generous buyout offer from Microsoft.
Yahoo now faces more uncertainty as Microsoft confirmed that it will hire Yahoo vice president of search Sean Suchter in December.
Microsoft said in a statement that Suchter will join as general manager of the Silicon Valley Search Technology Center to work on Live Search.
Yahoo, based in Sunnyvale, California, fell 19 cents, or 2.1 percent, to $8.95 at 4 p.m. New York time, on the Nasdaq Stock Market trading, has fallen to the lowest level since February 2003. Time Warner, based in New York, lost $1.07, or 13 percent, to $7.07 on the New York Stock Exchange, its biggest one-day decline in more than five years.
“AOL has been an overhang on Time Warner,” said Chris Marangi, an analyst at Gamco Investors Inc. in Rye, New York, which managed $26 billion as of Sept. 30, including Time Warner and Yahoo shares. “Investors are hoping that by some time next year, Time Warner will be a pure-play content company.”