Take THAT Bill Gates – Yahoo looks at AOL

Yahoo is getting closer to a deal with AOL to combine Internet operations.

The possible Yahoo-AOL tie-up is part of a threefold plan by Yahoo to present shareholders with an alternative to Microsoft's unsolicited offer. Yahoo would also propose repurchasing billions of dollars of its own shares and is negotiating with Google Inc. about an advertising tie-up. On Wednesday, Yahoo announced a short-term test under which it will carry search advertising from Google.

Frankly, I think a full merger with AOL, if Yahoo winds up having to merge or be acquired, is much more in consumers’ interest than an acquisition of Yahoo by either Microslob or Gurgle.

And, as the story notes, the deal makes sense for AOL parent TimeWarner. And, if this deal includes a full spin-off of AOL, I think would certainly clear regulatory hurdles more easily than a deal with either Microslob or Gurgle.

And, if that’s true in the U.S., that’s true in spades if this needs E.U. approval, too.

The story also notes Gurgle owns a 5 percent stake in AOL. I think that should be divested if Yahoo merges with either AOL or Microslob.

Meanwhile, Yahoo is also doing a short-term test of ad partnering with Gurgle. Even if not permanent, it is expected to raise Yahoo’s cash flow, which will let it buy back more outstanding shares, which would then make a Microslob acquisition tougher.