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