Well it looks like Yahoo is talking to AOL.

It is understood that Yahoo! and its team of advisers from Goldman Sachs and Lehman Brothers, the US investment banks, have spent the past week evaluating possible tie-ups with media and technology firms that would save it from being swallowed by Microsoft.

It is also understood that one option being explored is to restart merger talks with AOL, the online business owned by Time Warner.

You have got to be kidding me. Is Microsoft that bad? According to the attitudes of Yahoo it seems to be. It is this sort of thinking that has me very pessimistic on Yahoo. When personal decisions get in the way of business decisions then you know something is very wrong.

A merger with AOL would be a bad idea because Yahoo would saddle itself with additional debt and overhead. The question you have to ask yourself is why have a merger between a becoming looser and a real looser?

What galls me is the following comment.

A source close to Yahoo!’s thinking told The Times: “All they [Microsoft] are trying to do is pick off the company on the cheap. They’re trying to steal it. And the board is not going to let that happen. They have gone for a valuation that reflects the five-year low of the stock.”

Sorry, but the price that Microsoft is offering is an average price, not a low price. Maybe if somebody at Yahoo decided to do some real math and valuation Yahoo would not be in the mess that they are in now!

As I pointed out in another blog entry Microsoft is paying a whopper of a price in terms of valuation. What Yahoo needs to think about is why nobody else seems to be offering a counter-bid? Could it be that the Microsoft bid in financial terms is a whopper of a bid?

NOTE: I do not have any stocks in Yahoo. Though I recommended an April PUT.