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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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March 13, 2008 7:18 AM

Does AOL's Bebo deal lower chance of potential Yahoo tie up?

Posted by Benjamin J. Romano

One of the would-be "white knights" who could rescue Yahoo from Microsoft's acquisition bid was rumored to be Time Warner's AOL unit. And with Rupert Murdoch publicly taking News Corp. out of the running earlier this week, AOL was pretty much the last alternative left in play for Yahoo.

Does that change with today's announcement that AOL is buying U.K. social networking site Bebo for $850 million in cash?

Based on an early and rough transcript of an AOL conference call about the Bebo buy this morning, no one asked company executives about a Yahoo deal. I will be interested to hear what analysts who follow the company closely have to say about whether some kind of Yahoo-AOL combination is still feasible -- if it ever was.

At the same Bear Stearns investor conference at which Murdoch effectively squashed the rumors regarding his company and Yahoo, Time Warner CEO Jeff Bewkes left open the possibility of an unspecified AOL combination. However, Bewkes' comments were in reference to growing AOL generally and did not pertain specifically to the rumored Yahoo talks. Now, in light of the Bebo news, it's quite possible that's the "configuration" he was talking about. Here's the salient passage:

"If you're asking the question what do we think about, would something really added to AOL, or AOL added to something else make it stronger and more valuable, we can't rule it out, and we wouldn't. It's our obligation to try to make sure AOL gets in whatever configuration makes it the strongest and the most valuable."

Update, 10:21 a.m.: Henry Blodget at Silicon Alley Insider says AOL+YHOO is "modestly more attractive" post Bebo acquisition. "Yahoo is much stronger internationally than AOL, so the Bebo synergy would be greater. Also, the combined communications and social-networking power of Yahoo-AOL-Bebo would be impressive. This said, we still don't think the combo would be more attractive to Yahoo shareholders than a $31 Microsoft bid."

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