AOL Inc, undergoing a radical
transformation into the king of content on the Internet, is actively exploring
a breakup involving a complicated series of transactions that may lead to a
merger with Yahoo Inc, sources close to the plans said.
The plans are still in the
exploratory stage and Yahoo has not been contacted, the sources said. The plans
are also fraught with complications involving myriad moving pieces.
In many respects, the latest
discussions are derivative of plans contemplated in 2008 and 2009 before Time
Warner spun off AOL to Time Warner shareholders.
At the time, the media conglomerate
had explored the option of breaking apart AOL’s two main businesses. Its legacy
dial-up Internet service would have been sold to or spun off into EarthLink or
United Online. Its display advertising business would have been merged into Yahoo,
the sources said.
To avoid complication and to push
ahead with plans to rid itself of a decade-long nightmare, Time Warner spun off
AOL rather than face heavy tax liabilities that would have been associated with
a break up, said the sources.
The sources declined to be named
because they were not authorized to speak to the media.
AOL has continued to explore a
break up option since the December 2009 spin off. “You can drive the
pieces into people’s hands that could pay top dollar for them and create value,
or spin them off,” said one of the sources.
This strategy is dependent on the
buyers for the parts, including Yahoo and EarthLink, whose directions have
changed since Time Warner first considered these plans, said the sources.
Yahoo, which is expected to
generate $1.64 billion in Ebitda this year, could support AOL’s display ad
business, giving AOL the confidence to shed the dial up division, a big
financial engine at the company.
AOL declined to comment.
A spokesperson for Yahoo also
declined to comment, but a source close to the company reiterated that it is
not seeking proposals or in any buy-out discussions with AOL.