AOL CEO Pitches Yahoo Deal to Investors (Report)

Jeff Lipsky

Tim Armstrong has in meetings highlighted that a combination could yield up to $1.5 billion in cost savings.

NEW YORK - AOL chairman and CEO Tim Armstrong has in the past couple of weeks pitched the idea of a sale to Yahoo to top shareholders, Reuters reported Wednesday, citing sources.

His pitch highlighted that a combination of the two struggling online companies could yield up to $1.5 billion in cost savings from overlapping data centers and news sites, the report cited an unnamed investor as saying.

Armstrong, a former Google top executive, could use a deal to bow out of AOL gracefully - or look to run a combined company, Reuters said.

"As far as Armstrong's desire for an exit, he doesn't want to be doing what he is doing 18 months from now. He wants to be out," Reuters quoted a source familiar with Armstrong's thinking as saying. "He's an ambitious sort of guy and AOL is such an afterthought. But he would definitely put his hat in the ring to run a combined Yahoo/AOL."

An AOL spokeswoman had no comment on the Reuters report.

An AOL-Yahoo combination has been suggested in the past without ever leading to a deal. However, Yahoo has been exploring strategic alternatives, including a potential sale or merger, which could give any deal talk traction.

AOL's stock has dropped more than 40 percent since it was separated from Time Warner in 2009. Recent weakness was driven by AOL's quarterly earnings report in August that included management commentary that disappointed investors. After the results, some investors said their patience with Armstrong's turnaround strategy was wearing thin.

The news of Armstrong's Yahoo pitch came a day after a regulatory filing showed that a big institutional investor in AOL has slashed its stake in the company.

Just like Yahoo, AOL recently unveiled a push into professional online video with big-name partners. 

AOL's stock on Wednesday closed down slightly at $13.15, giving the company a market value of $1.4 billion. Yahoo shares also closed down slightly at $15.77, giving the firm a market capitalization of $19.9 billion.

Reuters said investor sources liked the idea of a merger, but said only time will tell if AOL can pull it off. It highlighted that there is overlap between Yahoo and AOL investors. Yahoo itself recently pulled out of the auction for online video joint venture Hulu.