Sun, Oct 16, 2005 - Page 11 News List

Yahoo on the hunt for a stake in AOL


Yahoo Inc is considering buying a stake in America Online Inc, joining other Internet powerhouses interested in the company's Web portal, a person close to the talks said on Friday.

The discussions were described as preliminary and not as advanced as separate talks AOL parent Time Warner Inc has had with Microsoft Corp and Google Inc, which is considering a joint bid with Comcast Corp.

News Corp has also expressed interest, but those discussions have largely ended, said the source, who spoke on condition of anonymity.

The Yahoo-AOL discussions were initially reported by

AOL's talks with Microsoft have been ongoing since late spring, while the other suitors emerged after word of them leaked last month, the source said. Time Warner is insisting on a controlling stake in any deal, the person said.

Yahoo shares rose US$0.15, or 0.45 percent, to close at US$33.52 on Friday on the NASDAQ. Time Warner shares increased US$0.41, or 2.33 percent, to close at US$18 on the New York Stock Exchange.

The interest in AOL comes as the company transforms itself from a declining business focused on providing dial-up access to a free content provider able to tap the recent boom in online advertising.

Late last year, AOL abandoned its longtime strategy of exclusivity and began making its rich offerings -- including concerts, news, sports and e-mail -- available through for free, a model Yahoo drove to become the Web's top brand.

The Web portal side of AOL's business is worth about US$11.3 billion, based largely on AOL's advertising potential, media analyst Michael Nathanson at Sanford C. Bernstein estimated in a research note.

According to Nielsen/NetRatings, Yahoo had 99.3 million visitors last month, a figure that would have grown to 120 million with the AOL properties. AOL trails Yahoo as well as MSN and Google with 72.5 million.

Rob Enderle, an industry analyst, said Yahoo's interest in AOL appears defensive.

"It's more of a block," he said. "They are less interested in getting it themselves. They are more interested in crippling Google."

Google would have most to gain from a stake in AOL.

It would give the Internet search leader a way to build a portal -- and grow its advertising potential -- while preserving an existing relationship with AOL responsible for more than 10 percent of Google's revenues.

Comcast, if it joins the deal, would get entertainment content from AOL and opportunities to lure AOL subscribers looking to drop their dial-up connections for high-speed services like Comcast's.

Beside blocking Google's ambitions, Microsoft could create synergies from an AOL deal, Enderle said.

Microsoft's MSN online division and AOL share a number of businesses, including an online portal, instant messaging services and dial-up access.

Any deal could require approval from federal antitrust regulators.

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