Yahoo closing in on AOL merger

Yahoo and AOL are performing due diligence on a merger deal, according to an insider source.

The companies are examining each others' books, the source told Reuters, to estimate potential combined earnings and figure out where costs could be saved.

Under the proposed deal, AOL's content and advertising business will be integrated into Yahoo.

Rumours of a Yahoo-AOL merger have been circulating since at least 2006, when Yahoo was run by former CEO Terry Semel.

Yahoo has long been seeking an alternative growth strategy to allow it to fend-off Microsoft's aspirations of taking over the company.

The latest round of negotiations began several months ago. But according to the source, both sides are being very cautious because any deal carries a lot of potential risk.