(Adds background on talks, shares, byline)
By Anupreeta Das
SAN FRANCISCO Oct 29 Yahoo Inc (YHOO.O) and
Time Warner Inc's (TWX.N) AOL unit are looking at each other's
books to figure out how much money they could make together and
where costs can be saved, a person familiar with the talks said
on Wednesday, indicating a merger may finally be on the way.
While noting a deal was not imminent, the source said the
two companies have engaged in "meaningful" due diligence about
a possible combination for the past couple of weeks.
Talks are focused on how to integrate AOL's content and
advertising business into Yahoo, said the source, who was not
authorized to speak publicly because the discussions are
Yahoo and Time Warner began talks several months ago, when
the Internet company was looking for an alternative growth
strategy to fend off a $47.5 billion takeover bid from
Microsoft Corp (MSFT.O).
Yahoo had repeatedly rejected Microsoft, which finally
withdrew its $33-per-share proposal in June after Yahoo cut a
search advertising partnership with Google Inc (GOOG.O).
But the Google deal, also part of Yahoo's alternative
strategy, is mired in the regulatory process because critics
have said it is anti-competitive. Meanwhile, Yahoo shares have
plunged to around $12.
Time Warner shares are down about 45 percent from
year-earlier levels, while Yahoo shares have fallen about 63
percent, as fears of an economic recession curbed corporate
spending on advertising while Google continued to dominate in
the Web search market.
Under the deal Yahoo and Time Warner have discussed, Yahoo
would fold AOL's content and advertising business into its own
operations, and Time Warner would get a stake in the combined
Executives and advisers from both sides met last week as
part of the due diligence process, the source said. Both sides
are being cautious because any potential deal carries "a lot of
risk," the source said, without providing further details.
Integration concerns would likely revolve around how to
fold AOL's advertising network into Yahoo's operations,
choosing whether to keep separate portals and email services,
and squeezing out cost savings by reducing duplication, one
former AOL executive said on condition of anonymity.
Yahoo and Time Warner declined comment. News of the due
diligence was first reported by the AllThingsDigital blog.
Shares of Yahoo were up 4 cents at $12.40 in late trading,
while Time Warner shares were down 15 cents or 1.5 percent at
(Editing by Gerald E. McCormick and Brian Moss)