By Anders Bylund | Published: October 30, 2006 – 03:11PM CT
Fortune’s top option for Yahoo would be to go ahead and wrangle out a deal with Time Warner to take over the AOL unit. It would provide “increased traffic and a shot in the arm” for the search advertising business at big Y, particularly since it would effectively override Google’s exclusive advertising contract with AOL from last year. But Time Warner says the unit is not for sale, and this would be an expensive way to go, with price estimates starting at $13 billion and no real ceiling. Yahoo currently has about $2.5 billion of cash on hand and $750 million of long-term debt, and a stock-swap deal isn’t particularly attractive with Yahoo shares trading near two-year lows today.
If AOL isn’t for sale, how about selling Yahoo to Microsoft? That would give Redmond a much stronger Web presence than the ailing MSN division alone, and the combination would rival Google in online revenue generation power. But the two companies have very different corporate cultures, and this smells like a repeat of the failed AOL/Time Warner synergies. Still, Microsoft could certainly afford the deal. It has cash equivalents of $32 billion, nearly equal to Yahoo’s $35 billion enterprise value, and unlike Yahoo, its stock has been on the rise for months and could be used for additional capital. Or, Microsoft could abandon its no-debt policy for a while. It would be a chewy nugget, but this deal could actually happen, if the management teams could agree to terms.
If not, Yahoo and eBay could merge, bringing together two companies with very different and still related areas of online expertise and clout. They have a history of discussing such a deal in the past, according to Fortune, and are already substantial advertising partners. But sources say the companies may just be too different to make this work, and the resulting entity would still be much smaller than mutual arch-rival Google. Let’s file this one under maybe, but not very likely.
Finally, the magazine concedes that Yahoo’s official stance is the real deal, and that the company intends to stay independent. “With the landscape changing, I am very, very excited about the opportunities for Yahoo,” said Semel two weeks ago, when Yahoo reported earnings. It is still the biggest destination on the Web, and just rolled out the beginnings of a new advertising platform that looks akin to the proven AdSense model in many ways. Can Yahoo stay hungry and on the move? If not, any of the more ambitious options could resurface as a Plan B.
For now, Yahoo is keeping busy with its own site, adding features and redesigning to meet the needs of an audience hooked on Web 2.0 features. There’s the oft-rumored acquisition of Facebook to work out, and there are still many independent, smaller services available to snap up before they get too pricey. If Yahoo wants a social networking presence beyond its chatrooms and discussion boards, there are plenty of options on the table.