Department of Déjà Vu: Little AOL's Quixotic Quest To Land Giant Yahoo

The last time AOL gobbled up a big company–that would be its audacious grab of Time Warner in the 2000 merger of the century–it ended in tears.

Now, it will take all of CEO Tim Armstrong’s considerable sales skills and impressive cheekbones to pull off a definite longshot the struggling Internet icon is attempting.

That would be trying to convince someone with piles of money–a private equity firm or a cash-rich tech giant such as Microsoft–to help it snatch control of Yahoo and fold AOL into it.

The effort also includes a lot of other moving parts, such as an ability to convince Yahoo’s Asian affiliates to get on board, as well as competing with other predators, including powerful media giant News Corp.

But you have to give the moxie award to Armstrong for trying to take the ragged assets of AOL, which only add up to $2.65 billion in valuation and trade them for Yahoo’s powerful and impressive array of content and communications units. Yahoo’s valuation is $21.5 billion.

The former Google advertising sales head, who arrived at AOL in March of 2009, certainly has been trying to convince Wall Street–and anyone who will listen, in fact–on the idea that AOL is cool once again.

That included a splashy spin-off into a public company, compete with hiring Diddy to be at the party on the floor of the New York Stock Exchange, an aggressive marketing campaign and rebranding of AOL, copious and extravagant industry sponsorships (including one with our D: All Things Digital conference last year, which included an appearance by singer Natasha Bedingfield).

And did I mention the AOL break-dancers out in force during the recent Advertising Week in New York?

As I told Armstrong during a recent conversation: If he puts any more lipstick on the AOL pig, it will have to come live with me in San Francisco.

All joking aside, he has to because, for all of Armstrong’s Don Draper-like smoothness, he is contending with a very serious turnaround in AOL.

Its core money-making business, the access part, is drying up fast, while the advertising part is still weak. A string of results in recent quarters bear out the rocky road.

Armstrong does point out–selling, always selling!–that since he took over, he has cut the employee base in half, has added $500 million to the balance sheet, struck a good search deal with Google, has launched new content sites and ad products and has hired a top-flight management team.

All true, but AOL is still huffing and puffing as a tiny player in world of giants.

But that has not stopped Armstrong from aggressively making the rounds to try to take advantage of the distress at Yahoo and the increasing pressure on CEO Carol Bartz.

According to many sources, he has deftly painted himself as the sensible and friendly alternative to her more abrasive style.

It is certainly working–big Yahoo investors love Armstrong and frequently tout him as the long sought after answer to Yahoo’s longtime woes.

Maybe so, but News Corp. also has a strong narrative of uniting Yahoo with a media giant. Frankly, it also has to somehow parlay its weak asset, MySpace, into another format.

Sources said CEO Rupert Murdoch and his digital head Jon Miller have been in touch with the Yahoo board in recent weeks, including former CEO and Co-founder Jerry Yang.

Whatever happens, it will certainly be entertaining to watch Armstrong go up against the wily Murdoch and many others.

The question is: Will the investors of AOL and Yahoo laugh or cry in the end?