Jessica Reif Cohen of Merrill Lynch speculates that both AOL and Yahoo may be deal targets, in 2007. The Merrill analyst, backed up by Rafat Ali at tech news site Paid Content, note that Google's 5% stake presents no insuperable obstacle to an AOL deal with Yahoo. The deal makes sense, in so far as AOL and Yahoo are both being eclipsed by Google, and a combination would obscure their relative decline. But there is an unusual hitch: neither AOL and Yahoo has management that could credibly run a merged internet giant.

Typically, merger negotiations, even those that make sense for shareholders, break down because top executives from each company think they're qualified, and entitled, to run the show. But, in this case, the usual problem is reversed: no credible internal candidate to lead a combined effort against Google.

Yahoo CEO Terry Semel is compromised, because Yahoo's recovery spluttered in 2006, and he's 64 years old. Sue Decker, his likely successor, wins plaudits for intelligence and organizational skills, but she's a former analyst and finance specialist, who lacks a vision for Yahoo, let alone a combined company. And even Semel has more feel for the internet, by now, than AOL's new CEO, Randy Falco, a TV executive who is only now coming to terms with email.

There is a way to make a success of a merger of AOL and Yahoo.

1. Close down AOL's head office in Dulles
2. Run both AOL.com and Yahoo.com sites off the same platform, Yahoo's
3. Use AOL's sales team, much of it acquired with Advertising.com, to fill the gaps in Yahoo's
4. Merge AIM with Yahoo's instant messenger program
5. Still prune Yahoo's product line and close down its Hollywood operation
6. Abandon Panama, Yahoo's own planned ad network, concede the sale of text ads to Google, and negotiate the best deal possible

However, none of the three internal candidates has the force of personality, the background, or the vision, to do what's necessary. So, my prediction: AOL and Yahoo may indeed be in play; but they will find different buyers.

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