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Yahoo! Buy of AOL More Likely: Report

The likelihood of a Yahoo! buyout of AOL is around 20%, says a new report.
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NEW YORK (TheStreet) -- Contrary to rumors this week that AOL (AOL) and a group of private equity investors were looking to buy Yahoo! (YHOO) , the reverse scenario is much more likely, a new report issued by Evercore Partners said Friday.

The report, which pegged the likelihood of an AOL takeout by Yahoo! around 20%, said a combination of the two companies would make sense given "the improving growth prospects in overall display, shared company objectives and potential for cost synergies."

A successful integration of AOL by Yahoo! could cut expenses in branded display advertising by 30% and push the business towards profitability, the report added.

However, a buyout of Yahoo! by AOL -- in which the Sunnyvale, California-based search giant would be forced to unload some of its assets including its 40% stake in

Alibaba Group

-- could be challenging. The report also ruled out other scenarios such as a reverse merger that would involve taking both AOL and Yahoo! private.

>>AOL Kooky for Yahoo:Tech Edge

"The whole complex transaction involving Yahoo! selling its Asian stakes seems farfetched," said Larry Witt, an analyst at Morningstar. "We don't think anything is imminent at all."

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Shares of Yahoo! climbed 4.55% to $16.66 in early afternoon trading Friday, while AOL rose 1.2% to $25.25.

Yahoo! trades at a market cap of about 22.5 billion, compared to AOL's 2.7 billion market cap.

--Written by Olivia Oran in New York.

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