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An AOL-Acquired Yahoo Will Head Right to the Corporate Chop Shop

Rumors that someone -- maybe AOL (AOL) -- will acquire Yahoo (YHOO) sent share prices up, though probably not employee morale. It was only February 2008 that Microsoft (MSFT) was willing to pay nearly $45 billion, or $31 a share, for the company. Today, even after the rumor's lift, Yahoo sits at less than half that number.

This has been a case of bungled management. My BNET colleague Marion Maneker notes that CEO Carol Bartz (the most overpaid CEO in the S&P 500 according to proxy advisory firm Glass Lewis) blew the situation when she failed to sell stakes in and Yahoo Japan. The question is, how would AOL or anyone else deal with Yahoo after a purchase? The answer is cut it up into pieces and try to do the one critical thing that always escaped Bartz: define a coherent business definition and strategy.

Yahoo's key weakness is that it isn't one thing or another. The closest Bartz -- and let's be fair, anyone else, for that matter -- has been able to get to a distillation of the business is what the company wanted from consumers. The company is a prime example of what I call high tech conglomerates. Corporations add on all manner of products and services because development and implementation on the Web is simply too easy. To resist the ADD pull to be all things to all possible paying people requires significant discipline that is missing in the case of Yahoo.

Granted, this rumor is likely more an attempt by bankers and brokers to stir up some business than a serious indication of an impending acquisition. AOL simply doesn't have the money for an outright buy without a complex deal mechanism involving selling the Asian assets at the very least.

But posit for a moment that AOL, or someone else, did pull together the financing, presumably including the sale of the Asian interests. The acquirer would have to take Yahoo apart and decide what was worth keeping and what it could safely jettison.

That would require conceptually separating all the pieces of Yahoo into a number of overall interests. AOL would clearly want content areas: finance, entertainment, the Associated Content operation, news, and the like. Even those would duplicate much of its existing activity. The company would likely have to pare down the combined staffing and eventually tie the brands together over time, using a transition to help customers get used to a new name.

But Yahoo Messenger? It's not even clear that AOL should keep its own instant messaging facility. Maps? A global waste. Shopping? Bring it to the customer service counter. Yahoo Mail? Return to sender. Autos? Hit the road. Forget the attempt to provide everything to everyone. If AOL is in the content business, then let it do exactly that.

And that's the problem that makes a rational acquisition questionable. Yahoo has too many divergent parts that don't cohere. After you send the pieces off to companies that might find them attractive, how much value would be left, and would it be worth all the effort and time to make a deal work? Probably not. So we'll likely see Yahoo dangle more, as executives continue to leave and board members fondly think of that golden time when they had a chance to bring in a fortune. Instead, they insisted that the company be a contender. It wound up a pretender.


Image: user jana_koll, site standard license.