AOL Exploring Transactions, May Merge with Yahoo!

AOL's undergoing a radical transformation into the king of content on the Internet, is actively exploring a breakup involving a complicated series of transactions that may lead to a merger with Yahoo!, sources close to the plans told Reuters.Reuters is saying that AOL is exploring how the company might break itself up, through a "complicated […]

AOL's undergoing a radical transformation into the king of content on the Internet, is actively exploring a breakup involving a complicated series of transactions that may lead to a merger with Yahoo!, sources close to the plans told Reuters.

Reuters is saying that AOL is exploring how the company might break itself up, through a "complicated series of transactions," and then sell the biggest and most strategic part of itself to Yahoo. Quoting the ever-present "unnamed sources" the article says that similar breakup plans were originally hatched within TimeWarner but aborted because of potential tax liability associated with such a maneuver.

This strategy is dependent on the buyers for the parts, including Yahoo and EarthLink, whose directions have changed since Time Warner first considered these plans, said the sources.

EarthLink, for instance, was once a willing and capable buyer of AOL's cash-generating dial-up business. But it has agreed to buy DeltaCom Inc for $516 million, tying up most of its free cash and is unlikely to pursue another big transaction for now, another source said.

Yahoo, which's expected to generate $1.64 billion in Ebitda this year, could support AOL's display ad business, giving AOL the confidence to shed the dial up division, a big financial engine at the company.

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