Microsoft Asks AOL to Dance

Word of a meeting follows a breakdown in negotiations between Microsoft (Nasdaq: MSFT) and Yahoo over the weekend, one that led activist investor Carl Icahn to step up efforts Monday to replace Yahoo's board in an Aug. 1 shareholder vote.

Everyone's Talking

AOL has been in continual discussions with both Yahoo and Microsoft, and previous talks led Google (Nasdaq: GOOG) to buy a 5 percent stake in AOL for US$1 billion in December 2005. Yahoo and Google also have separately agreed to a broad advertising partnership.

The Wall Street Journal, citing undisclosed people familiar with the matter, said the Microsoft-AOL discussions remained preliminary but would involve the companies' online operations. There were no indications the two companies are any nearer to a deal.

Microsoft and Time Warner (NYSE: TWX) officials declined comment Wednesday.

AOL Transformation

Microsoft shares rose $1.05, or 4 percent, to $27.19 in late afternoon trading Wednesday, while Time Warner shares were up 80 cents, or 5.8 percent, to $14.72. Yahoo shares rose 87 cents, or 4 percent, to $22.41, while Google's stock went up $15.44, or 3 percent, to $532.53.

Time Warner has been entertaining the sale of all or parts of AOL as the Internet unit tries to transform itself into an advertising-driven business to offset rapid declines in its dial-up Internet access operations. Time Warner is already working on splitting AOL's advertising and access operations, which would make the sale of one or both easier.

Microsoft has been struggling in its online efforts and earlier this year proposed an acquisition of Yahoo, which is also having trouble competing with market leader Google. But Yahoo fiercely resisted and instead advanced discussions with Google, AOL and other companies about a combination.