AOL (AOL) is constantly mentioned as a potential target for Yahoo! (YHOO) to buy. At the start of this year, I had speculated that such a union would make great economic sense, as there would be ample opportunity to reduce costs, and for Yahoo! to harness AOL's advertising technology assets. However, over the summer, I said publicly that I didn't expect a deal to take place. It appeared that Yahoo's CEO, Marissa Mayer, didn't see the AOL asset as cool enough to buy.
In recent weeks, this issue has received renewed attention. First, Starboard Value LP mentioned the possibility of an AOL-Yahoo! merger in their September letter to the Yahoo! board of directors. Starboard has since disclosed having a 2.4% stake in AOL at the end of September. Second, a recent Reuters report claimed that several Yahoo! investors were pushing for a merger between the two Internet icons.
I still think a combination between Yahoo! and AOL is unlikely, for the "cool" factor I mentioned before. Yahoo! has recently announced that they would be acquiring BrightRoll for $640 million. It would be even stranger now if they were to proceed with buying AOL, because AOL's Adap.TV asset is largely duplicative with what BrightRoll has to offer.
If Yahoo! doesn't buy AOL, who will? I don't think AOL has a future as an independent company. I think Tim Armstrong has done a good job milking his subscriber business for all the OIBDA he can get. He has also pushed the company into Brands with TechCrunch and The Huffington Post. He has built a great ad tech stack. But where does he go from here?
I think Armstrong should sell. He's a 6%-to-7% owner, so he has an interest in finding a good buyer and moving on to the next chapter in his life.
My suggestion is Turner, owned by Time Warner (TWX).
It would be somewhat ironic if Turner ended up buying AOL, after the AOL-Time Warner merger almost 15 years ago, and then later the AOL spin-off. The fact that AOL had spun off was what attracted join the company from Google (GOOGL).
Nevertheless, look at the set of digital assets that Turner owns: Bleacher Report, Funny or Die, and all the digital aspects of their regular television content.
It would be a solid fit for both sides. I expect it to happen within the next year.