This Article is From May 13, 2015

Verizon to Buy AOL for $4.4 Billion in Cash

Verizon to Buy AOL for $4.4 Billion in Cash

A Verizon logo is seen during the International CTIA WIRELESS Conference & Exposition in New Orleans, Louisiana May 9, 2012. (Reuters photo)

Verizon Communications on Tuesday said it would acquire AOL for $4.4 billion in an all-cash deal that will see today's king of mobile phones acquire the one-time king of media.

Verizon is the largest mobile phone operator in the country, and has growing lines of business offering high-speed Internet, as well as business and streaming video services.

AOL, which acquired Time Warner for $165 billion in what is broadly regarded as a debacle and the high-water mark of the dot-com bubble, is now a shadow of its former self, managing a small collection of media and technology properties.

Verizon is billing the deal as a way for the company to expand its video offerings. Already a leader in distributing mobile video through its robust national mobile phone network, Verizon is making a push to become a leader in so-called over-the-top video, shorthand for television content distributed through the Internet.

But in acquiring AOL, Verizon is buying much more than websites that host streaming content. Along with its video and online advertising technology, AOL owns The Huffington Post, a sprawling collection of international news websites with growing traffic.

It also manages a dwindling but profitable dial-up Internet business, providing online access for those who live in areas too remote to have broadband, or who never canceled their subscriptions.

"Verizon's vision is to provide customers with a premium digital experience based on a global multiscreen network platform," Lowell C. McAdam, Verizon's chief executive, said in a statement. "This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience."

Verizon will pay $50 a share for AOL, a 17 percent premium over the company's closing share price of $42.59 on Monday. Verizon will fund the deal with cash and short-term debt.

"The world is going mobile, and it is going there really quickly," Tim Armstrong, AOL's chief executive, said in an interview. He will stay with AOL after the acquisition and said that by doing so, he would be positioned to help build the phone company's growing content business.

Verizon, with more than 1.5 billion connected devices, has a vast network through which to distribute mobile content. It has been quietly building up its entertainment offerings, but until now has not made any significant acquisitions to bolster its offerings.

In AOL, it will acquire a collection of video and entertainment sites, and also advertising technology, that it can layer atop its distribution network.

"The combination will be a big chair at a big table," Armstrong said. "We have assets that can cleanly plug in and scale on top of Verizon's platform."

Among the biggest assets Verizon will acquire is The Huffington Post, which AOL acquired in 2011 and which has recently been introducing international sites. "I'm the one who ran HuffPost from 20 million users to 200 million users," Armstrong said.

Details of The Huffington Post's business have not been revealed, but late last year Armstrong said Huffington Post sites brought in hundreds of millions of dollars in annual revenue. Asked if Arianna Huffington, the founder and face of Huffington Post, was planning to work for Verizon, Armstrong said: "Yes, definitely."

AOL and Verizon have been partners on several projects in recent years. Last summer, at the Allen & Co. retreat in Sun Valley, Idaho, McAdam and Armstrong shared a lunch. Over the meal, Armstrong said, they discussed deepening their ties, and also a potential deal.

For much of last year, the idea percolated, with each company thinking it over. In recent months, both companies engaged financial and legal advisers and made a push for the transaction.

"In the last couple months, it got more turned toward doing the deal that we did today," Armstrong said. "It's been a natural progression."

In today's frothy market for mergers and acquisitions, $4.4 billion is not a terribly large number, and 17 percent is not quite a blockbuster premium. But for AOL, which has struggled to escape its troubled past and has been the subject of countless takeover rumors, the acquisition by Verizon provides a measure of closure to its tenure as an independent company.

"Verizon is one of the natural fits for AOL," Armstrong said. "We've been building media and content and advertising platforms, and they've been creating it on the mobile site."

"AOL has once again become a digital trailblazer, and we are excited at the prospect of charting a new course together in the digitally connected world," McAdam said. "At Verizon, we've been strategically investing in emerging technology, including Verizon Digital Media Services and OTT, that taps into the market shift to digital content and advertising. AOL's advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams."

The closing of the deal, which is subject to regulatory approval, is expected this summer.
© 2015, The New York Times News Service
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