With AOL sale, Yahoo, others look more interesting

Verizon's bid for AOL is raising questions about whether broadband companies might be itching for similar deals — and whether Yahoo could be next.

"The interesting thing for Yahoo is to figure out if the company will continue being the acquirer, as it has been of late, or whether it will finally fall prey to a Comcast or other communications giant," said James McQuivey of research firm Forrester Research.

Verizon on Tuesday agreed to pay $4.4 billion to buy AOL, known for its "You've got mail" slogan. The deal gives the broadband provider use of AOL's advertising technology, as well as content to help beef up its planned streaming video subscription service, expected later this year.

AOL's On Network also produces original shows on 14 curated channels, including programs such as Steve Buscemi's Park Bench, often compared to Jerry Seinfeld's Comedians in Cars Getting Coffee. And AOL.com remains a dominant Web presence, the fourth-most popular digital media destination, behind Google, Yahoo and Facebook.

The Verizon/AOL deal is prompting some to suggest AT&T or another telco start looking seriously at Yahoo because the companies are so similar, including their investments in programmatic ad selling.

Shares of Yahoo closed up just 0.6%, to $43.84.

AOL's lucrative sale to Verizon puts pressure on Yahoo CEO Marissa Mayer to clean up the company to make it more attractive to buyers, said Eric Jackson of Ironfire Capital. Indeed, Mayer has been in the process of selling Yahoo's massive stakes in Asian Internet companies Alibaba and Yahoo Japan, which would otherwise raise the price for its suitors.

"I think it's going to put more pressure on her," said Jackson, who previously pressed Mayer to pursue a merger with AOL. "Anytime AOL has success, people come back and say, 'How's Yahoo doing?'"

For years there had been rumblings that Yahoo should buy AOL to maximize its ability to provide online display advertising and to minimize costs.

In September hedge fund firm Starboard Value LP urged Yahoo to consider a merger with AOL, suggesting the deal could create up to $1 billion in "synergies."

But Mayer said she didn't "get" the possible merger and found it "small, unexciting, uninspiring and backward-looking," Re/code reported last year.

Now that the AOL ship has sailed, Yahoo might be the target.

Starboard, which also is an investor in AOL, declined to comment on Tuesday's merger news.

Historically, telcos have looked to buy other telco providers to expand their businesses, often at very high costs, said McQuivey. That was the idea behind Comcast's failed April bid to buy Time Warner Cable or AT&T's purchase of DirecTV.

But in a digital economy that may not be the best way to expand, especially internationally, said McQuivey.

Verizon's purchase of AOL will make it one of the first U.S. telcos really to have a global presence.

For a company such as AT&T, buying Yahoo could be a great way to accomplish what Verizon just did, said McQuivey.

Telcos are more inclined to innovate "because they've already been through a wave of disruption before, when landlines became less important," said McQuivey.

While there are other companies out there also looking to expand, such as Facebook and Google, he doesn't see them as being interested in Yahoo because they've already got so much of what Yahoo has — developers, apps, infrastructure.

But Yahoo comes with customers and infrastructure that make it an interesting target.

With the Verizon deal, AT&T and other telcos may realize that they haven't "been thinking big enough," he said.

Indeed, Verizon's purchase of AOL is being touted as more forward-looking than the strategy employed by AT&T, which last year bought DirecTV.

"AT&T is investing $47 billion in old-line video delivery with DirecTV just as the pay-TV sector is beginning to roll over. Verizon is investing $4.4 billion to, as Wayne Gretzky famously put it, 'skate where the puck is going to be,'" research firm MoffettNathanson said.

"AT&T will now be in the position of having to hold back the forces of change. Verizon is to be commended for embracing them," MoffettNathanson said.