Yahoo! Still Working on AOL Deal

July 6th, 2008 at 3:00 PM - News by Jeff Gamet

The Internet search company Yahoo! is still working on putting together a deal that could see it merging with Time Warneris AOL instead of facing a possible buyout from Microsoft. Apparently Yahoo! spent the weekend in discussions with its lead financial advisor, Goldman Sachs, and Time Warner, according to the Times Online.

If the parties could come to an agreement, Time Warner would finally be able to dump its Internet service division, and Yahoo! would potentially be in a stronger position to keep Microsoft at bay.

Yahoo! shot down an unsolicited buyout offer from Microsoft at the beginning of the year. At the time, Yahoo! executives said that Microsoftis offer was too low. The two companies entered into negotiations, but eventually Microsoft walked away after deciding Yahoo! wasnit worth the asking price.

Microsoft was hoping to close a deal with Yahoo! to better position itself as a competitor to Google in the online search advertising market. So far, Google is the market leader with Yahoo coming in second, and Microsoft a distant third.

Microsoft may have walked away from the negotiation table, but that doesnit mean the company is out of the game. The Redmond-based company may be taking with Carl Icahn, the billionaire market player bent on ousting Yahoo!is board and pushing a Microsoft buyout deal.

If Mr. Icahn is successful in pushing through his proxy take over, he can hand Yahoo! to Microsoft and potentially walk away with a hefty profit from the deal. Should Yahoo! manage to close a deal with Time Warner before its next board meeting, the odds of a deal with Microsoft coming together drop significantly -- and that appears to be just what Yahoo! wants.