AOL 'discusses deal' with Yahoo after Bartz exit

NEW YORK - AOL Inc Chief Executive Officer Tim Armstrong is talking with advisers of Yahoo Inc to gauge its interest in combining the companies after the ouster of CEO Carol Bartz, according to two people familiar with the matter.

Armstrong is discussing options for a combination aimed at strengthening the two Internet companies, said the people, who did not wish to be identified. He has talked with private equity firms and investment bankers from Allen & Co working with Yahoo, one person said.

Armstrong had been interested in a merger with Yahoo last year and was rebuffed while Bartz was at the helm, one person said. Her departure prompted him to revisit the idea, and, under one scenario now being considered, Yahoo would acquire AOL and Armstrong would become CEO of the combined company, the person said.

Yahoo is unlikely to be interested in a deal with AOL at this time, given the company's losses and declining revenue, according to one person familiar with the matter. AOL's market value is about $1.6 billion, and Yahoo's is about $18.2 billion.

Graham James, a spokesman for AOL, and Kim Rubey, a spokeswoman for Yahoo, declined to comment.

AOL and Yahoo have been struggling to compete against Internet companies such as Google Inc and Facebook Inc. AOL has lost almost $800 million since it was spun off from Time Warner Inc in 2009. The Internet pioneer has struggled to make money from online advertising as its profitable dial-up Internet access business declines. AOL is also using Allen & Co to consider its strategic options.

Yahoo fired Bartz on Sept 6, after less than three years as CEO. Yahoo has fallen more than 80 percent as it lost Internet users and advertising revenue to Google and Facebook.

Bloomberg News