With the Alibaba IPO in the rearview mirror, the euphoria over Yahoo shares has faded in a hurry. YHOO stock has been trending lower since the IPO date as investors who really wanted exposure to the Chinese e-commerce giant simply bought shares of BABA instead of using Yahoo as a proxy.

Shares of YHOO trended lower, while questions about how the company would deploy its newfound stockpile of cash arose as well. After all, the core business for Yahoo, display advertising for its massive user base, continues to underperform despite the potential, at least when compared to others in the general internet advertising market such as Google GOOG or Facebook FB.

However, recent news from activists with Starboard Value could change things as the firm has just increased their stake in YHOO and are looking to make changes in order to unlock value. Chief among these proposals are plans for Yahoo to buy AOL and merge the two internet giants.

Both stocks are trading higher thanks to this speculation with AOL moving higher by about 3.5% and Yahoo rising by 4.5%. Both companies are seeing elevated trading volumes too, but could this merger work?

I like the idea at first glance. As Starboard Value said, the move could help to shore up the combined company’s competitive position and deliver huge synergies too. The move also looks to help Yahoo improve its standing in one of the few things it actually does well, content.

By purchasing AOL, Yahoo could turn itself into a sort-of modern day news hub with great strengths in finance (Yahoo Finance and Daily Finance), sports (Yahoo Fantasy Sports, Rivals.com), technology (Tech Crunch, Engadget) and general news (AOL owns Huffington Post). This really seems to be the only way for Yahoo to survive in my opinion, as clearly it can’t cut it in the search or mail segments like it used to (though given its success with the Alibaba investment, maybe an investing arm is the ultimate last resort).

But what do you think?

Would a Yahoo-AOL tie-up be great news for investors over the long term? Or is this merger destined to fail, rekindling memories of the Time Warner-AOL debacle and putting Yahoo further behind other tech giants?

Let us know what you think in the comments section below!