All Things Digital

So–at this point–BoomTown feels it is not untoward in asking: What the heck is taking so long for Yahoo and AOL to decide whether or not to merge their struggling operations?

And, after talking to a dozen sources, inside and outside both companies, this week, I can tell you there is definitely one nagging problem: They’re just not that into each other.

“It’s like two people who are not really attracted to each other trying to get married,” said one source close to both companies. “But they also both desperately need a new story and have no other place to go, so they keep at it.”

Make no mistake, though, these arranged marriage negotiations are grudgingly advanced. Oh, they are talking, and how, now engaged in what another source describes as “very serious due diligence.”

Last week, for example, Yahoo (YHOO) and AOL execs had a series of long meetings in New York to discuss what the integration of the various overlapping units–content, advertising, email–might look like and to assess each other’s assets some more.

It was all organized by AOL President Ron Grant–although it is Time Warner M&A SVP guy Jim Burtson (pictured here) who is repping the media giant in the talks–who is more likely to be a player in a merged company than AOL CEO Randy Falco.

Cost savings are a prime motivator in the merger, including whether to have a single back-end system for a variety of products and services and what to eliminate or not.

“Bringing these two companies together is very operationally complex,” said one source close to AOL, which is a unit of Time Warner (TWX). “There are lots of issues to be resolved and you don’t want to wait to deal with them after a merger, because that is asking for disaster.”

For example, as was discussed, what should happen when a person types aol.com into a browser? Should it go to a Yahoo page, or perhaps the AOL sites should remain intact?

And what about the competing mail and communications systems? Yahoo favors its own products, not surprisingly, although its execs were particularly impressed by a presentation by former Bebo head Joanna Shields, who is now president of AOL People Networks, about how its various social-networking and communications assets like AIM will be knitted together in the future.

Left unsaid, although a major gorilla in room, was who would run the whole shebang. Yahoo, of course, is assuming that its execs will dominate, including CEO Jerry Yang and President Sue Decker.

But Time Warner execs, which will own a major stake in the new entity, are worried about the pair’s management abilities, given their recent record, and would prefer that a new leader is brought in to start with a clean and more invigorated slate.

“This is not just unloading AOL for us,” said one person close to Time Warner. “It is also an important strategic move for our future to get this right.”

For its part, Yahoo is still worried about weakening AOL assets, including its large, but low-margin ad network.

AOL’s performance, which has been lackluster in recent times, will be on display in a week when Time Warner announces its earnings on Nov. 5, and Yahoo is watching carefully.

The low price of Yahoo shares is also a problem, given the company would have to give up a big percentage of itself in a deal.

Today, the stock is dipping below $11.50. And it shows no signs of improving, tamped down by the weak economy’s impact on its display advertising business and a feeling that Yahoo management is unable to improve its fortunes.

That makes what percentage Time Warner would get for trading AOL a moving target.

Also worrisome is the still-pending situation with the Justice Department’s investigation into the much-maligned Yahoo-Google search advertising partnership.

Some kind of resolution is expected to be announced this week, a decision on which the Yahoo and AOL talks also hinge.

Most expect the deal to either be neutered significantly or even blocked by regulators. Either way, that’s not good for Yahoo, which is counting on the increased ad revenues from the arrangement.

If it is blocked, Yahoo will have to seek other alternatives.

Like, um, Microsoft (MSFT). According to sources, some members of Yahoo’s board have reached out to the company about renewing talks about a search deal, in case of a Justice Department lawsuit related to its Google deal.

Microsoft execs have also been to visit Time Warner recently. The reason: If Yahoo and AOL do manage to merge, the company will press regulators to not allow Google–which has a search deal with AOL–to continue to be so.

As to Google (GOOG)? It owns five percent of AOL and also has a major interest in what happens to both Yahoo and AOL.

In other words, it’s very, very complicated dance.