Yahoo-AOL merger proposal: recipe for revival, or stagnation?

Sun Sep 28, 2014 7:24am EDT
 
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By Jennifer Saba and Alexei Oreskovic

(Reuters) - A proposed merger of Internet pioneers AOL Inc and Yahoo Inc could create a nimbler player in Web video, but strong growth, the measure of success in Silicon Valley, would remain elusive.

Investors are revisiting one of the most speculated Internet combinations, after activist investor Starboard on Friday pressured Yahoo to merge with AOL.

A pairing could help the companies compete in their core advertising business. But even combined, they would remain but a shadow of the Internet powerhouses they once were, analysts and advertising experts said.

Cost cutting after a merger would generate plenty of savings, some $1 billion, according to Starboard's analysis. Accelerating business growth would be harder.

"Neither company is a leader in ad dollars, and other than cost savings, there is little to gain by combining them," said Erik Gordon, a professor at the Ross School of Business at the University of Michigan.

DOING THE MANAGEMENT SHUFFLE

A merger would suck up a lot of management time as the companies integrate staff and systems. In the meantime, the combined company could fall even further behind the competition, said Gordon.   Continued...

 
A Yahoo logo is pictured in front of a building in Rolle, 30 km (19 miles) east of Geneva, in this file picture taken December 12, 2012.  REUTERS/Denis Balibouse