US telecommunications giant Verizon has confirmed its intention to buy AOL for $4.4bn (€3.9bn), turning the biggest US 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% to AOL’s Monday close. AOL and its properties — including the Huffington Post, TechCrunch, and Engadget websites— would become a Verizon subsidiary, with AOL CEO Tim Armstrong staying in his role.
Mr Armstrong, who has been trying to build up AOL’s expertise in mobile ad technology , sees mobile representing 80% of media consumption in the coming years.
“If we are going to lead, we need to lead in mobile,” he told employees yesterday.
Verizon has over 100 million mobile consumers, content deals with the likes of the National Football League and “a meaningful strategy” in mobile video, Mr Armstrong said.
For Wall Street, the deal is about the technology.
“The primary attraction of AOL was the technology it has developed for selling ads and delivering online and mobile video,” said Wells Fargo Securities analyst Jennifer Fritzsche.
AOL shares jumped 19% to $50.69, in early trading yesterday, while Dow component Verizon was down 0.5% at $49.51.
Mr Armstrong said talks between Verizon and AOL started last year. He met with Verizon CEO Lowell McAdam at the Allen & Co Sun Valley conference last July over lunch about how to further their partnership.
He said he has a multi-year commitment to stay with Verizon and run AOL as a separate division but declined to give further details.
The deal is the latest example of convergence between the US media and wireless industries. AT&T, the second biggest US telecom company, is also betting on video, agreeing to buy number one US satellite TV provider DirecTV, for $48.5bn. The deal is pending.
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 last Friday.
For AOL, the deal caps a years-long period of reinvention into one of the most successful advertising technology companies. Verizon said it expects the deal, which includes about $300m in AOL debt, to close this summer.
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