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By Kenneth Li
NEW YORK, July 15 Time Warner Inc's (TWX.N)
discussions to merge or sell its AOL Internet division with
Microsoft Corp (MSFT.O) or Yahoo Inc (YHOO.O) have taken on new
urgency ahead of Yahoo's Aug 1 shareholders meeting, a source
familiar with the discussions told Reuters on Tuesday.
The structure of any deal is not immediately clear, though
a combination of any of the parties is expected to redraw the
landscape for advertising on the Internet.
Sources had said earlier that a deal with Yahoo would
likely involve merging AOL with the Web pioneer, with Time
Warner taking a minority stake in the combined company. A deal
with Microsoft would likely be a sale of AOL, the sources said.
Time Warner and Microsoft declined comment. A
representatives of Yahoo was not immediately available.
Time Warner's talks come after Microsoft's buyout talks
with Yahoo fell apart, with Microsoft withdrawing its $47.5
billion bid in May. Since then the two have waged a public war
Discussions with Time Warner have accelerated as both Yahoo
and Microsoft view AOL as potentially beneficial to leverage
their positions in the Internet marketplace, where Google Inc
AOL plans to split its dial-up Internet business and has
focused on building a one-stop online advertising shop over the
past two years.
Yahoo's interest in AOL is designed to show shareholders
that it could grow without Microsoft.
Yahoo needs to be convincing because it faces a proxy
battle against activist investor Carl Icahn on Aug 1. Icahn,
who owns about 5 percent of Yahoo shares, has aligned himself
with Microsoft, and seeks to replace Yahoo's board and oust CEO
Icahn this week said he and Microsoft had structured a deal
to buy out Yahoo's search advertising business that would have
guaranteed Yahoo $2.3 billion in search revenue annually for up
to 10 years assuming Yahoo's audience remained intact and the
parties renewed after five years.
Microsoft's interest in acquiring AOL would serve to bulk
up its display advertising business as well as gain more
traffic to weaken Yahoo's and Google's position. The software
company also needs to convince shareholders it has an Internet
strategy independent of its so far unsuccessful pursuit of a
Yahoo rejected the Icahn/Microsoft deal over the weekend
and has said it remained open to a full buyout of the company
at $33 per share, Microsoft's last offer before walking away.
Microsoft has said it would only strike a deal to buy
Yahoo's search business or the entire company if Yahoo's board
Since Microsoft walked away from it initial bid to buy
Yahoo, Yahoo has separately struck a nonexclusive search
advertising deal with Google Inc, which is currently under
review by U.S. regulators.
Meanwhile, Time Warner is shopping AOL as part of a
strategy to realign its business to focus on content, not
distribution. It plans to complete a deal to separate from its
Time Warner Cable TWC.N by the end of the year.
(Additional reporting by Eric Auchard and Anupreeta Das in San
(Editing by Kim Coghill)