Possibility Of A Yahoo-AOL Merger in 2007; Google-AOL Change of Control Clause

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So bets Merrill Lynch analyst Jessica Reif Cohen, in a note titled “Is 2007 the year AOL and Yahoo are in play?” last week. She said that AOL and Yahoo could be open to a tie-up in 2007, spurred by AOL’s falling market share in Internet search and Yahoo’s lag behind Google.
“We believe there are several trends that could push either AOL or Yahoo towards a major transaction, with each other or with another competitor…Although not without its problems, we believe that an AOL-Yahoo combination is one of the more logical combinations in this arena.” Also, Microsoft could be a suitor for either of these companies, the note days.
Due to their overlapping businesses, cost savings would be considerable in any combination involving Yahoo!, AOL or Microsoft, particularly in overhead and marketing, research & development and, in the case of a Microsoft-Yahoo merger, ad platforms and technology investments,said the note.
Merrill also highlights this tidbit: “our understanding is that AOL’s current contract with Google has a change in control clause that would allow either [Microsoft] or Yahoo! to move its traffic onto their platforms.” Update: Here’s this from the SEC filing a year ago after the Google-AOL deal: Google will have the right to sell its new 5 percent stake in AOL as soon as July 1, 2008. Also this language: “Under certain circumstances involving the transfer or issuance of HoldCo equity interests or the transfer of AOL equity interests by Time Warner, we can elect to have Time Warner or HoldCo purchase our equity interest in HoldCo at an appraised fair market value. We will also have the right to tag along on sales by Time Warner of HoldCo interests, and Time Warner may require us to sell our interests in certain circumstances.”
Other potential acquirers of Yahoo! and AOL include Google, News Corp. and Comcast.
For a chart of the possible big-ticket acquisition plays in 2007, see this chart…click on thumbnail below.

6 Comments

Francesca R

<a > Google Yahoo Merger<a>

If you would like to learn more about the Google Yahoo Merger, watch this video from Industry expert Dan Savage. Mr. Savage discusses how Google destroyed his business and the impact that a Google Yahoo Merger could have.

Macel

I dont quite understand the lingo, can yall tell me is twx a buy or not?

Thanks
Mascel

Rafat Ali

Hey Rex
You're probably right..it won't be that easy. I think we even wrote about the exact contract (it was filed with SEC back then)…just have to dig back and find it.

Rex Hammock

Rafat, on Dec. 16, 2005, Google acquired a 5% stake in AOL. So, there is more than a mere "contract" between Google and AOL. As I recall, at the time, there was a big Google/Microsoft competition for this stake/contract. I don't recall the details, but am wondering how the relationship with AOL will once again be in play — wouldn't you imagine Google's $1 billion to AOL at the time included some type of first-refusal clause? Also, if Yahoo or MS "buy" AOL, it will include a sizable amount of cash going to Google due to its stake in AOL — and the amount of money that would, no doubt, be a part of that "change in control clause" — Rex

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