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No one should buy AOL

Yahoo! and Verizon are the latest to be linked to the one-time internet darling. As its ad business struggles to grow, most of the company's profit still derives from subscriptions of yore. Even using AOL to save taxes is tough, too. Any takeover rationale would be a stretch.

Marissa Mayer-led Yahoo! is one name that keeps popping up. Aggressive hedge fund Starboard Value, a shareholder of both tech companies, extols the virtues of a combination. It estimates up to $1 billion of potential savings. That's optimistic, as the figure represents about a third of their combined operating expenses. Beyond the cost-cutting, it's hard to see what the attraction for Yahoo! would be.

The AOL division home to monthly dialup, virus protection and other services delivered $421 million of operating profit in the first nine months of last year. AOL's bottom line was only $351 million over the same period. The subscription business is also dying, albeit at a plodding pace.

AOL, under Chief Executive Tim Armstrong, has plowed profit back into media like Huffington Post and ad selling technology. The media business generates a small profit, but is shrinking as the company shuts brands. The ad business, bolstered by the growth of online video, is growing at nearly a 50 per cent clip, but isn't yet profitable amid fierce competition and buyers worried about fraud across the industry.

The disparate nature of AOL's operations will discourage suitors. Verizon, for example, might be interested in automated ad buying, but HuffPo would be an odd fit. That may explain why Verizon's boss threw cold water on the idea soon after Bloomberg reported it.

The sum of AOL's parts isn't any more attractive because of the respective problems at the three divisions. If each is worth one times estimated 2015 sales, as Cowen analysts suggest, it would mean the company is worth $3.3 billion. Its current market value is $3.7 billion.

Some $4 billion in accumulated tax losses overseas might entice a buyer sitting on large gains - like a Yahoo! with its Alibaba proceeds. Such financial engineering, however, is fiendishly complex and risky. Also, AOL's losses date back to the Time Warner days and takeover speculation has been swirling for years. One crazy M&A deal involving AOL was enough.