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AOL and Yahoo: Most Probable Internet Merger in 2007

The most probable merger in the internet sector in 2007 is a merger between Yahoo and AOL, Time Warner`s internet segment. At least, according to a report made by the investment bank Merrill Lynch. Although, the bank mentioned that Microsoft may decide to acquire either Yahoo or AOL.

Merrill Lynch says that Time Warner is now prepared to take the necessary steps to generate value for investors, one way to do this is to sell AOL, although the company did just appoint a new CEO and chairman for the company ? former CEO of General Electric`s NBC Universal. Merrill Lynch`s report also states that AOL has switched to a business modal based on income from advertising, while its hold in the search engine market continues to shrink. A possible partner for merger could be Yahoo, which continues to fall behind Google in technology and revenues, which is damaging for its stock price. In addition Yahoo and Microsoft are loosing more and more searching contracts to Google, which is taking an increasingly larger lead. The report indicates that Yahoo, AOL and Microsoft have a great deal of overlaps, especially in their operating costs and research and development, so that any merger would lead to great savings.

Merrill Lynch`s report mentions the problem that could arise from Google`s 5% stake in AOL. The bank says that the deal between AOL and Google includes a clause dealing with a change in ownership. According to this clause Microsoft or Yahoo will be able to direct AOL`s user traffic to their platform. Last year Microsoft was close to closing a deal with Time Warner, in which MSN and AOL would merge. But in the end Google signed a contract with AOL and bought 5% of the company for $1 billion. Other potential buyers for AOL are Google, News Corp. and Comcast.