NEW YORK (TheStreet) -- Yahoo! (YHOO - Get Report) boss Melissa Mayer quietly having drinks with AOL (AOL) boss Tim Armstrong has led to speculation the two companies could merge, following Alibaba's initial public offering and the windfall goes on Yahoo!'s balance sheet.
Though details of the discussion between the two former Google (GOOG) executives are not known, it happening at Allen & Co.'s yearly media summit adds to speculation something is brewing between Mayer and Armstrong.
B. Riley analyst Sameet Sinha believes the two companies are so similar in a number of ways that it would be interesting to see what direction Yahoo!'s Melissa Mayer might take the with the new merged venture. In a phone interview, Sinha said he expects Yahoo! will report 38 cents a share on $1.1 billion in revenue, when the company reports second-quarter results Tuesday afternoon.
Yahoo! shares were up 1.1% to $35.83, while AOL shares were up 0.89% to $40.63 in mid-Monday trading in New York.
Following the Alibaba IPO on the New York Stock Exchange, Sunnyvale, CA.-based Yahoo! will come into a lot of money, perhaps as much as $10 billion or so. Yahoo owns 22.5% of Alibaba based on the strategic partnership it made back in 2005. Based on a Alibaba original IPO valuation of $120 billion that comes out to a payday of approximately $26 billion, before taxes for Yahoo!. Alibaba is China's largest online merchant - that country's version of an e-commerce marketplace which includes features from both Amazon (AMZN) and eBay (EBAY).
After taxes Yahoo would then have more than enough cash on hand to make a deal for AOL, with AOL's market cap slightly less than $4 billion.
Neither AOL nor Yahoo could immediately be reached for comment.
This is not the first time a potential AOL-Yahoo! partnership has been in the news. Three years ago there were rumors that both companies had hired financial advisors to investigate the companies' possible pairing. At the time, it was thought that New York-based AOL's Tim Armstrong would become CEO of the newly combined company and Yahoo!'s then CEO Carol Bartz would assume the role of Chairman.
-- Written by Gary Krakow in New York.
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