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Yahoo's AOL, Google deals still in the works

Yahoo is still working on deals with Google and Time Warner's AOL to improve its strength. A Google search ad partnership is likely to be announced later this week.

Microsoft may no longer be breathing down its neck, but Yahoo is still working on major deals with Google and Time Warner's AOL that could significantly alter the Internet pioneer.

Yahoo art

The nearer-term possibility is a partnership to use Google for delivering some ads next to Yahoo search results. That option apparently is still on track to be announced this week, perhaps Wednesday or Thursday, according to a source familiar with the situation.

The Google deal could increase Yahoo's revenue, because Google gets more revenue per click for its ads, but it also could reinforce Google's search-ad leadership and make it even harder for Yahoo to catch up with its own Panama system. And though Yahoo thinks it can address antitrust concerns by employing a system that's open to other ad suppliers as well, regulatory scrutiny is a significant factor.

A deal to acquire AOL also is under active consideration, although talks haven't progressed as far as with the Google arrangement, the source said. Under that deal, Yahoo would get AOL, sans its declining Internet access subscription business, and cash from Time Warner, and Time Warner would get a 20 percent stake in Yahoo.

Yahoo would use the cash to buy back its own stock, a move that could increase its value. Since most observers expect Yahoo's price to drop Monday because Microsoft walked away, Yahoo likely will face pressure to boost its share price.

Another possibility Yahoo explored was a partnership with Fox Interactive, but that didn't progress as far as the Time Warner deal, the source said.

Yahoo declined to comment on the possibilities.