Some private equity firms have explored a Yahoo buyout, combining the company with AOL Inc or with News Corp assets.
This would mark yet another change for a company that helped define the Internet two decades ago, but has been unable to keep up. Instead, it has stagnated to the advantage of rivals Google, Facebook and Twitter.
"What does Yahoo want to be?" said one executive close to the discussions between private equity firms and the interested parties. It is the same question investors have asked since Google overtook the Sunnyvale, California Internet pioneer.
Over the past year, Yahoo has flirted with bold acquisitions to cling on to a seat at the forefront of new Web trends. It explored buying location services company Foursquare and also eyed Groupon, the red-hot group buying site, according to a report in the AllThingsDigital technology blog.
Each of those would have led Yahoo down a different path, said the executive, making a deal with the company difficult.
One thing it would not be is an Internet company with a strong Asian footprint.
According to one scenario sources say had been discussed by private equity buyers, a deal would be contingent on Yahoo selling its prized, high-growth Asian assets, including its a 40 percent stake in China's Alibaba and a 35 percent slice of Yahoo Japan.
Analysts estimate that those investments alone account for at least half of Yahoo's market value and most of its growth, and a sale would leave a U.S.-focused Internet has-been with murky prospects.
Since taking Yahoo in 2009, Bartz has focused on content by developing Web video offerings and buying companies like Associated Content, which employs freelancers to crank out short, inexpensive articles on myriad topics.
One major shareholder, who declined to be identified, would back a deal with AOL, betting that AOL Chief Executive Tim Armstrong, an admired former Google executive, would bring the missing strategic clarity to a combined company.
"I don't know that just making them bigger does anything. I don't know that making them smaller does anything," said Pacific Crest Securities analyst Steve Weinstein. "Operationally that does nothing, that's just moving the pieces around the board."
"If someone were to come in and buy Yahoo, they better come in with a better idea in terms of how they're going to grow it," he said.
Beyond the charisma of Armstrong, who remains an untested turnaround executive, it is unclear how a combination would help Yahoo overcome the challenges that have eroded its market share and sapped revenue growth in recent years.
"I don't think there is anything in it for Yahoo," said Gleacher & Co analyst Yun Kim, who spoke highly of Armstrong. "I can't think of anything else that AOL could bring."
Yahoo is one of the world's most popular online destinations, and the No. 2 search engine in the United States behind Google. But the Web portal has struggled to define its place in a world dominated by social networking services like Facebook and Twitter.
Its Web page views -- an important metric of how much Web surfers use Yahoo's online products -- were flat in the first quarter of 2010, and declined 4 percent year-over-year in the second quarter. The company reports its third-quarter results on Tuesday.
MILKING CASH FLOW
Transforming Yahoo is not likely to be the priority, or the motivation, for a buyout.
"If you're private equity investor, you're not going to say what can I make Yahoo into. You're going to say, 'what is Yahoo today,' and how can I maximize the value of that business," said Cowen and Company analyst Jim Friedland.
According to Friedland, Yahoo's most valuable asset is the traffic to the site that it generates from its popular Web email product. Yahoo capitalizes on that traffic by offering ad-supported content, like articles and videos on its site.
Private equity investors are "not necessarily looking for some sort of game-changing transition to do a deal," said Friedland.
"It doesn't matter if Yahoo is smaller in 10 years than it is today, because they can milk the cash flow," he added.