Yahoo - AOL Merger in the Works?

MediaPost is reporting on some Merrill Lynch analysis that one or both companies may seek "transformative transactions" in order to stay competitive. One potential option is an AOL-Yahoo merger, which to me, sounds more logical than Microsoft buying Yahoo.

Does this make sense? On one level, yes, as both companies have become stagnant against "the Google." The only engine that is making ground is Ask, which is outpacing currently outpacing everyone. Yahoo should have purchased Ask.com two years ago, but it's too late for that now, as Barry Diller would never let go of his new favorite child.

But an AOL-Yahoo merger? It doesn't make sense. Neither company can offer the other anything interesting. What Yahoo really needs is a new CEO, but it looks like they missed their chance at that, too.