On the face of it, this whole idea of AOL somehow buying Yahoo seems absurd. AOL's market cap ($2.6 billion) is about one eighth the size of Yahoo's ($20 billion). But as the Wall Street Journal reports, private equity firms Silver Lake Partners and Blackstone Group are penciling out ways to combine AOL with Yahoo in some sort of reverse merger, with Tim Armstrong becoming CEO. The thinking is that Yahoo could sell it's 40 percent stake of Alibaba (which could be worth as much as $10 billion) back to Alibaba, and shed some other assets as well to shrink the company to a more manageable size. AOL would do a reverse merger into Yahoo, and the private equity firms would finance the whole thing with debt, possibly taking the newly merged company private.
It sounds like a pretty tortuous transaction. (Disclaimer: Although I am now an AOL employee and TechCrunch is a recent acquiree, I have no direct knowledge of these talks one way or another). Even the WSJ notes that nobody's bothered to ask Yahoo what they think about this idea yet. That's because it's a trial balloon.
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