So it appears things have gotten even more complicated for the Microsoft/Yahoo merger.  From Techcrunch...

Things are moving fast in the Yahoo-Microsoft drama. All the different forces are aligning for an endgame. The latest twist: The WSJ is reporting that Yahoo is close to signing a deal to combine with AOL.

This at the same time that Yahoo is doing a limited test to place Google ads in its search results. Meanwhile, News Corp, which Yahoo once hoped would be its white knight, is said to be turning on Yahoo and talking to Microsoft about joining its bid. Obviously a lot of balls are up in the air right now, and anything is possible.

Here's the thing, I've spent a good amount of my life studying the history of the tech industry.  To the best of my recollection two failing companies have never combined to make a more successful company.  It just doesn't happen.

Mergers can be good long term investments but their short term affect on a company is to distract. Logistical problems cause the companies to become inwardly focused which by definition causes them to fall behind their competitors (who in theory are outwardly focused like every good business should be)

So when two companies that are in decline and therefore already behind their competitors attempt to merge the end result is to bring the combined company even further behind.  A recipe for disaster if ever there was one. 

Beyond that, a company in decline already has a management problem.  I mean, I hate to generalize to that extent but its true.  If your company is failing it isn't being managed well.  Cause = Result. 

This again causes problems since combining two companies is pretty much the ultimate management task.  It takes the toughest management task in existence, building a company, and combines it with the task of trying to stabilize not one but two existing companies.  Even good mergers are a nightmare and require excellent managers. 

In the end, mergers like this really just don't work.

Lucky companies manage to survive but end up shrinking to equal the size of one of the pre-merger companies (HP/Compaq).  This essentially erases one company's value entirely.  Unlucky companies just end up dying. 

I'll be the first to admit the Microsoft offer isn't ideal but at least it gives Yahoo a chance at thriving (however unlikely).  That said, this might be good news for Microsoft.  It means a year or so from now they can get Yahoo AND AOL for the same price they are willing to pay for Yahoo now!