Yahoo and AOL in Talks for Possible Union

Yahoo (YHOO) is in talks with Time Warner’s (TWX) AOL unit about some kind of combination of the two companies, in the company’s latest attempt to find an alternative to accepting Microsoft’s (MSFT) unsolicited $31-a-share takeover bid, the New York Times reports. The story says Google (GOOG), which has a 5% stake in AOL, is supportive of a combination. (And why wouldn’t they be, if it actually stopped Microsoft from succeeding in its offer for Yahoo?)

The Times also says the company is considering postponing its annual meeting as a way of delaying a possible proxy fight by Microsoft, which has been widely reported to be putting together an alternative director slate.

Just how investors would react to a combination between Yahoo and AOL remains to be seen; but I can’t imagine that the Street would find it more appealing than MSFT’s offer. The idea reminds me a bit of the concept of tying two bricks together and then throwing them in the water to see to see if they float.

So far, Yahoo investors seem uninspired by the idea; YHOO Wednesday morning is down 5 cents at $28.01.