Why AOL-Yahoo Deal Is Stuck In Purgatory

[tanya1177]

Kara Swisher talks to "a dozen" sources and gets the latest on the AOL (TWX) - Yahoo (YHOO) deal:

* Talks very advanced
* Companies now doing "serious due diligence"
* Last week: "long meetings in New York to discuss what the integration of the various overlapping units–content, advertising, email–might look like and to assess each others assets some more."
* Time Warner M&A man Jim Burtson is quarterbacking everything from M&A side
* Post-merger management has yet to be decided (and that's part of the problem)
* Discussions have reached absurd granularity: Where does user go if types AOL.com?

Most importantly: The deal is taking forever because the two companies don't really want to merge. Yahoo's stock has been demolished, so the dilution will be horrific. Time Warner, meanwhile, thinks Sue Decker and Jerry Yang are feeble.

Our opinion: The longer these negotiations go on, the less likely the deal is to happen. Given Yahoo's current stock price, we'd put the odds at less than 50%.

Microsoft, of course, is watching patiently. We still think that Microsoft's secret bid might be "$300 million more than Yahoo's." (We used to think the bid was $500 million more than Yahoo's, but at this point, why overpay?)