While analysts call it a high paid acquisition, Verizon has cited its own reasons on the importance of takeover of AOL. Post the merger; Verizon is set to become one of the biggest providers of content and video for the web and mobile phones.
New York-based Verizon Communications Inc. (VZ, Financial) is going to buy the American multinational mass media corporation AOL (AOL, Financial) for a sum of $4.4 billion. The news took AOL shares up 19% to $50.62, while shares of Verizon declined 0.7% at $49.46. Verizon offered $50 per share, which represents a premium of 17.4% over the closing price of the stock. The merger will add AOL and its properties like the Huffington post, Techcrunch and Engadget websites to Verizon’s portfolio with AOL’s current Chief Executive Officer Tim Armstrong continuing with his position. The deal is expected to close this summer, which also includes $300 million of AOL debt.
Verizon’s interest
Coined as Verizon Communications in 2000, the American broadband and telecommunications company is also the largest wireless communications service provider in USA. It has approximately 100 million mobile consumers and is into content deals with National Football League. Keeping up with the market demand, the company acquired the assets of OnCue, Intel’s (INTC, Financial) Internet based TV platform, which helped the company in building a video streaming product with increased presence in voice and data services. The ongoing deal with AOL will further benefit Verizon to take up its revenues through mobile video. AOL’s internet business saw a drop in the recent times, but the ad-tech offering has brought back lost profits to the company. Verizon is going to leverage from AOL’s strong infrastructure of Mobile advertising. There are some analysts who are of the belief that Verizon is overpaying for the takeover considering the fact that AOL’s last three among five quarters have seen a major downfall in share prices of AOL to as low as $32. However, Verizon has offered an all-cash $50 per share which it has clarified saying the urgency to buy AOL was due to its sinking core wireless business and requirement of telecommunications spectrum immediately to make space for increasing mobile video traffic.
While Verizon approached LionTree Advisors, Weil Gotshal & Manges and Guggenheim Partners for advice, Allen & Co. LLC and Wachtell Lipton Rosen & Katz advised AOL. Many other big telecommunications companies are also eyeing such deals as the mobile phone expansion has slowed down. For instance, AT&T (T, Financial) is looking to take over number one US satellite TV provider DirecTV (DTV, Financial).
Good times of AOL
Post the acquisition of automated advertising platforms like Aap.TV., AOL had been delivering higher profits through advertisements. In the recent quarter itself, AOL was able to post profits above expectations helped by rising demand for real-time bidding platform that helps to place video and display ads. AOL has also seen days when its dial up Internet service was extremely popular with millions of subscribers. The period was also known as dot-com boom, which gave AOL opportunity to buy movie, television, and publishing company Time Warner Inc. (TWX, Financial) helped by the rocketing share prices of AOL. This was termed as the most disastrous corporate mergers in history. Later on, AOL got disassociated with Time Warner in 2009.
Future plans
The deal with Verizon is quite significant for AOL as it hopes to reinvent itself through the association with one of the most successful advertising technology companies. Armstrong, the CEO of AOL, has shared that mobile will be the focus for the company going forward as it is the most beneficial format in the current market scenario. He believes that almost 80% of the media will be consumed by mobile alone in the coming times. Mobile video especially is undergoing “a meaningful strategy”. Armstrong who has a multiyear commitment to continue with Verizon informed that the talks between the two companies started almost a year ago and also that he will run AOL as a separate division.
