Bloomberg dropped a doozy of a scoop on Friday afternoon: AOL's chief executive Tim Armstrong wants to sell his company to Yahoo and then run the whole operation, "according to two people familiar with the matter." First of all, as we pointed out earlier, this happens all the time. Just last fall, AOL tried to talk Yahoo into the reverse merger idea twice before, once last year and once in 2008. In the words of Wired's Tim Carmody: "Each time, cooler heads strapped smelling salts around their necks, muttered 'wait, why are we doing this?' and walked away." That's sort of exactly what happened this time, the hat-trick goal in the AOL-Yahoo merger rumor game. At face value the deal is also ludicrous. Yahoo has ten times the market cap as AOL, and with both companies suffering, a merger would probably only make matters worse. 

It took CNBC less than an hour to debunk the rumor from with a report that a "source close to Yahoo says no interest in AOL." That didn't stop AOL stock from sinking five percent in the wake of the chatter it produced, however. The chatter was pretty funny nevertheless.

Tim Armstrong is hardly a savior CEO says Erick Schonfeld at TechCrunch:

While a combination of AOL and Yahoo is always an option, with the main advantage being that it solves Yahoo's leadership search problem if Armstrong becomes the CEO, it is not a particularly good option. Two dogs don't make a right (at least in the eyes of Wall Street).

It's worth pointing out that AOL owns TechCrunch, so Schonfeld would presumably have an opinion. Of course, given the recent, very well-publicized three-way battle between Armstrong, Arianna Huffington and TechCrunch founder Michael Arrington might have skewed this opinion somewhat.

It's not that bad an idea says Henry Blodget at Business Insider. Blodget, however, also didn't think it was a good enough idea to write a fresh post about the matter. Instead he republished a post he wrote last fall when we last heard whispers of an AOL-Yahoo marriage with a few fresh parentheses, including this one:

And, now that another year has gone by, this would actually require more persuading. In our opinion, Tim did not move quickly or aggressively enough at AOL. And the combination of AOL and Yahoo would create a combination many times bigger and more complicated. Perhaps he has learned his lesson now, though, and would be more aggressive and decisive this time.

"There's WAY too much attention on AOL and Yahoo right now," tweeted Felix Salmon. "Successful mergers get done quietly, in the dark. Not in this kind of glare."

However, Yahoo has hired two major investment banks for a "strategic review." The board's strategy and transactions committee has already brought on UBS to consult them on the sale of Yahoo Japan and they'll work alongside advisers from the recently retained Allen & Co. investment bank. The Wall Street Journal reports that Yahoo is also considering hiring J.P. Morgan to consult.

If it's not a merger, it might be something else suspects Tim Carmody accordingly:

So I think we have to ascribe this to one of three things:

  1. A very bad idea from one or both of two companies who seem to have no shortage of bad ideas lately;
  2. Somebody floating a useful rumor that shakes things up a little bit M&A-wise and drives both companies towards their preferred outcome (whatever that might be);
  3. Something else, a partnership, partial acquisition or property swap that heaven forfend, might even make some sense.

What a joke implies Alex Pareene at Salon: "AOL and Yahoo should DEFINITELY merge, and then they should buy Gawker and Time Magazine and Arianna Huffington should run ALL of it."