Yahoo - Overshadowed by Google

Yahoo must have a new appreciation of how Burger King feels about McDonald's: Constantly looking up at No. 1 gets vexing. So it should come as no surprise that Yahoo's chairman and CEO Terry Semel is mulling a number of moves that would impress Wall Street and steal the spotlight from the Google behemoth.

FORTUNE has learned from multiple sources that Yahoo (Charts) recently approached Time Warner (Charts) (parent of FORTUNE's publisher) about buying America Online - essentially trying to jump-start talks that broke down a year ago. A source close to Yahoo disputes that Yahoo approached Time Warner and says that there are no active conversations between the two companies. Regardless of which version is correct, a Yahoo-AOL merger would be a face-saver for Semel: Last year Google (Charts) outflanked Yahoo and swooped in to become AOL's exclusive Internet search provider, picking up a 5% stake in AOL for $1 billion as part of the deal.

If AOL rebuffs him, Semel has other dealmaking options. The 63-year-old former co-chairman and co-CEO of Warner Bros. has a considerable checkbook available for acquisitions. (Yahoo's market value is $35 billion, and it has about $3 billion in cash and securities.) A Yahoo purchase of youth-oriented Facebook for as much as $1 billion has been rumored for weeks. Semel could also sell his company. Microsoft and others would love to own the web's biggest single audience. So, too, would Google - if only to keep Yahoo away from Microsoft (Charts).

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