Reports Say Yahoo, AOL Doing Due Diligence For Tie-Up, But Sources Tell Us Not So Fast

Are Yahoo (NSDQ: YHOO) and AOL (NYSE: TWX) finally getting ready to merge? Reuters reports that the two companies are now doing due diligence on each other’s finances in what could, after months of on-again, off-again discussions, be a prelude to a tie-up. The wire service’s source, whose name it did not disclose, said the process is “meaningful” but not imminent: The two companies are “looking at each other’s books to figure out how much money they could make together and where costs can be saved.” AllThingsD also reported the due diligence angle yesterday.

Reuters says the talks center on “how to integrate AOL’s content and advertising business into Yahoo,” which could essentially swallow both AOL’s portals and editorial efforts and its Platform-A ad behemoth. That could add a significant new dimension to the DoJ’s still-ongoing scrutiny of Yahoo’s Google (NSDQ: GOOG) ad deal. Question is: How ready will the department be to green-light an amalgam of Yahoo, Google and Platform-A advertising assets? Alternatively, a Yahoo/Platform-A tie-up may afford a fall-back option, should the Google avenue be blocked.

Updated: Staci adds: Yes, AOL and Yahoo are still in talks at high levels and, yes, the talks are serious but sources close to the discussions tell me to call it “due diligence” is a mistake. These sources say that nothing has been decided, that there is no deal of any sort yet and that nothing is imminent. Getting to the “due diligence” phase of auditing books, advertising numbers and the like, they say, would require an agreement that moves beyond discussion and into the “we have an agreed-upon deal if everything checks out” phase. We’ll keep you posted.