Let’s face it, the jokes pretty much write themselves. According to one report, Time Inc.—the company that owns Fortune, among other things, and pays my salary—is considering a bid for some or all of the assets of Yahoo as the latter looks to salvage some value from its ongoing collapse. Cue the snarky comments about the Time and AOL merger, tying two rocks together to try and make them float, a couple of drunks holding each other up, etc.
It doesn’t help that Time Inc. recently acquired what remains of another faded Internet giant, namely Myspace, as part of a deal for the digital ad network Viant. But both actually make a certain amount of sense if you look at them more closely.
To be clear, I don’t know whether Time Inc. (TIME) has looked at or is looking at acquiring some of Yahoo’s core businesses, but Bloomberg is usually a pretty reliable source on this sort of thing. (Time Inc. spokesman Jaison Blair said that the company’s policy is not to comment on such reports.) Obviously, having my employer buy something like Yahoo would probably affect me in a variety of ways, some of them good and some of them possibly not so good.
The more interesting question is why Time Inc. would even consider making such a bid. Isn’t Yahoo (YHOO) damaged goods? The company has been under-performing even its own much reduced targets for so long it’s become a running gag in media and financial circles. About the only thing keeping the stock price from cratering is the value of its Alibaba stake.
In fact, if you remove the value of Yahoo’s share of Alibaba and its investment in Yahoo Japan, some analysts believe that the current market value of the company’s core businesses is approaching zero. So why would Time Inc. or anyone else—including other reported bidders such as Verizon and AT&T—even be thinking about acquiring them?
Yahoo announced more layoffs. Watch:
In Time Inc.’s case, there are several key factors, and one is audience and scale. Yahoo may be seen as a dead man walking by most of the media and web industries, but its homepage and other sections (such as Finance and Sports) are still used by hundreds of millions of people. According to its 2014 annual report, Yahoo had one billion users a month worldwide. That traffic has value, especially at a time when media companies like Time are trying to generate the kind of scale advertisers want.
Another key factor, and the one that drove the Viant acquisition, is advertising and particularly ad-related targeting data (which is also why Viant wanted Myspace). Yahoo has a number of interesting things to offer in that area, including its BrightRoll video ad network and the mobile analytics engine it got by buying Flurry.
Like many other traditional media companies, Time Inc. not only needs advertising scale, but more information on its users, so that it can offer advertisers better targeting, the way that digital giants like Facebook can. This is why Verizon (VZ) and AT&T (T) are interested in Yahoo, and the video and mobile side of that equation is also why Verizon bought AOL. (One problem with Yahoo’s user base, however, is that many of them never log in.)
On the mobile side, Yahoo also has mobile mail, news and messaging apps that are used by a substantial number of people (Yahoo Mail has 225 million users, the company says, most of whom are mobile), and some Time Inc. insiders say this could also help explain the media company’s interest in the company. Getting mobile apps with such a large built-in user base could help fill a significant gap for the media company.
One of the many risks in a Yahoo acquisition is a departure of the company’s (highly paid) talent. So what exactly would Time Inc. be acquiring? That’s a fair question.
In financial terms, Time Inc. is at a bit of a disadvantage compared to Verizon and AT&T, both of which happen to have fairly substantial war chests with which to bid up the price or seal a deal. Time Inc. doesn’t have a ton of cash—$711 million, according to the most recent earnings report, after $83 million of stock repurchases and $100 million of debt repurchases—and what it does have is partly devoted to paying the interest on the $1.3 billion in debt that its former parent Time Warner (TWX) saddled it with when it spun the company off in 2014.
That said, Time Inc. could have an ace in the hole, as Bloomberg notes, and that is a little-known maneuver called a Reverse Morris Trust transaction. Without going into too much detail, this is a way for a company to accomplish a tax-free spinoff of some of its assets to a smaller company. In effect, a merger of Time Inc. and Yahoo could be structured as a reverse takeover, with Yahoo being seen as the buyer of Time Inc.
Get Data Sheet, Fortune’s technology newsletter.
If it were to happen, such a deal would almost inevitably be compared with Time Warner’s ill-fated AOL merger, a transaction that Time Warner chief executive Jeff Bewkes once called “the biggest mistake in corporate history.” That deal also involved a traditional media entity combining with a digital media company in the hope that the latter could help supercharge the former. Instead, Time Warner had to take a writedown of almost $100 billion, one of the largest corporate losses the world has ever seen.
So needless to say, Time Inc. is likely stepping gingerly around the idea of a Yahoo acquisition—though again, I don’t know for certain. And there’s no question that large acquisitions of faded Internet companies have the potential to go badly awry. But nevertheless, Time’s needs and Yahoo’s assets aren’t quite as crazy a combination as they might appear.