- Title: AOL-MA/VERIZON-UPDATE Verizon to buy AOL in $4.4 billion mobile video push
- Date: 12th May 2015
- Summary: INTERNET (MAY 12, 2015) (REUTERS) (MUTE) (PART MUTE) VARIOUS OF VERIZON'S TWITTER PAGE VARIOUS OF VERIZON PRESS RELEASE WITH HEADLINE READING "VERIZON TO ACQUIRE AOL"
- Embargoed: 27th May 2015 13:00
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- Topics: General
- Reuters ID: LVA3D7PSYUV5XWA70I28L1B70WNZ
- Aspect Ratio: 16:9
- Story Text: Verizon Communications Inc said on Tuesday (May 12) it will buy AOL Inc for $4.4 billion (USD), turning the biggest U.S. wireless carrier into a leading provider of content and video for the web and mobile phones.
The $50-per-share offer represents a premium of 17.4 percent to AOL's Monday close. AOL and its properties, including the Huffington Post, TechCrunch and Engadget websites, would become a Verizon subsidiary, with AOL Chief Executive Officer Tim Armstrong staying in his role.
Armstrong, who has been trying to build up AOL's expertise in mobile advertising technology, sees mobile representing 80 percent of media consumption in coming years.
Verizon has over 100 million mobile consumers, content deals with the likes of the National Football League and "a meaningful strategy" in mobile video, Armstrong said.
For Wall Street, the deal is about the technology. Verizon has been building a video streaming product as it faces the wide availability of voice and data services.
"We characterize it as a strategic blunder," said Sean Egan, CEO of Egan-Jones Ratings Company.
"When you step back and think about what Verizon's business is, it is communications and network. This is a step away from that business. Verizon is facing some major strategic challenges. They have lost land line, it's dead, okay? It's shrinking every single year. They have two other businesses that is mobile and data and both of those businesses are under existential threat as a result of the development of Wi-Fi and the build out of the information infrastructure, such that competitors, nascent competitors, such as Google phone, represent a significant threat going forward to the core business of Verizon."
AOL shares jumped nearly 19 percent to $50.62, while Dow Jones Industrial component Verizon was down 0.7 percent at $49.46.
Armstrong told Reuters talks between Verizon and AOL started last year. He met with Verizon CEO Lowell McAdam last July about how to further their partnership.
Armstrong said he has a multi-year commitment to stay with Verizon and run AOL as a separate division but declined to give further details.
Advertising has become a major revenue stream for AOL, helped by the acquisition of automated advertising platforms such as Adap.tv.
Demand for the real-time bidding platform that helps advertisers place video and display ads helped AOL beat sales and profit forecasts in its most recent quarterly report.
For AOL, the deal caps a years-long period of reinvention into one of the most successful advertising technology companies.
At the peak of the dot-com boom, AOL, whose dial-up Internet service once counted tens of millions of subscribers, used its elevated stock price to buy movie, television and publishing conglomerate Time Warner Inc in one of the most disastrous corporate mergers in history. After being spun off from Time Warner in 2009, AOL shares returned to the New York Stock Exchange, opening at $27 in November 2009.
"AOL has the potential for being a serial killer in the sense that Time Warner had a very poor experience with AOL," said Egan.
"If you remember, Time Warner paid a huge price for it about 12 plus years ago, and it disemboweled that company. AOL has not grown much as a share price since May of 2013 up until the past week. They're another business that is having some significant problems, so I can understand why AOL wants to sell. The other question is whether or not this is a good fit for Verizon and in our opinion it's a miserable fit."
The $50-per-share bid by Verizon values AOL below its high of $53.28 in January 2014. Shares have fallen in three of the last five quarters but have gained as much as 56 percent from last year's low of $32.31, leading some analysts to question whether Verizon was overpaying.
AOL has held talks to spin off Huffington Post as part of the Verizon deal, potentially valuing the news and commentary website at $1 billion, Re/code, the technology news website, reported Tuesday, citing sources.
Verizon said it expects the deal, which includes about $300 million in AOL debt, to close this summer.
LionTree Advisors, Weil Gotshal & Manges and Guggenheim Partners advised Verizon. AOL's advisers were Allen & Co Llc and Wachtell Lipton Rosen & Katz. - Copyright Holder: REUTERS
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