Verizon, the largest wireless carrier in the U.S., announced Tuesday it will be acquiring AOL in a landmark $4.4 billion deal.
The all-cash deal will see Verizon pay $50 per share for AOL, which is 17 percent more than what its stock closed on Monday at $42.59.
The move will allow Verizon to become the largest provider of content and video for the web and mobile phones, while also boosting its digital advertising efforts. Lowell McAdam, Verizon chairman and CEO, said in a statement that the purchase will expand its wireless and over-the-top (OTT) video strategies.
With more than 130 million subscribers and 1.5 billion connected mobile devices, Verizon maintains an enormous network to create and distribute mobile content. Although it has in the past produced various entertainment content, like providing NFL games on mobile devices, this is the first time that Verizon has made any substantial acquisitions to expand these offerings.
“Verizon’s vision is to provide customers with a premium digital experience based on a global multiscreen network platform,” McAdam 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.”
He added that “AOL has once again become a digital trailblazer.”
The acquisition will first be a tender offer followed by a merger, which would transform AOL to a subsidiary of Verizon. The deal remains subjected to standard regulatory approvals and the final transaction will close this summer.
Verizon was advised by Guggenheim Partners and LionTree Advisors and was given legal advice from Weil, Gotshal & Manges. AOL was advised by Allen & Company and received legal advice from Wachtell, Lipton, Rosen & Katz.
Shares of the Internet pioneer soared nearly 18 percent during the morning trading session, while Verizon shares tumbled 1.6 percent.
Verizon will have full control over AOL’s media properties, such as the Huffington Post, Engadget and TechCrunch. But there has been some hints that the wireless provider may sell off the Huffington Post because AOL’s mobile and video technologies were the key components to the deal – the blog is worth an estimated $1 billion.
As part of the deal, Verizon will also take over a diminishing but still profitable dial-up Internet business. This venture provides online access to residents residing in remote areas that are too distant to have broadband Internet, or never canceled their subscriptions.
Reactions from AOL Insiders, Analysts
AOL Chairman and CEO Tim Armstrong will stay on in his role to run the brand following the acquisition, which means he’ll help grow Verizon’s content business. “The world is going mobile, and it is going there really quickly,” Armstrong told the New York Times.
Steve Case, AOL co-founder and the company’s former CEO, gave his full support to the merger. “Congrats to my friends @AOL. Hope merger with @Verizon will ensure brighter future (mobile etc) for company that first got America online,” Case tweeted.
Forrester analyst James McQuivey told USA Today soon after the announcement that this acquisition will definitely position Verizon to be a “global media player” with greater reach but “at a much lower cost than trying to acquire a different network provider.”
TechCrunch added: “There are lingering questions about whether it’s an all-in deal for the longer term, or whether certain operations that are not as central to Verizon’s bigger strategy may eventually get offloaded.”
Not everyone is ecstatic about the deal. Craig Moffett of media research firm MoffettNathanson said in an interview with Reuters that many of the assets could prove more of a distraction to Verizon than a benefit.
“There’s the question of whether there is truly an advantage in owning all of this themselves,” Moffett stated. “They are paying a premium to own rather than rent, and they are getting a hodgepodge of ancillary assets that may be as much a distraction as a benefit.”
AOL’s History of Acquisitions
AOL hasn’t been immune to acquisitions, takeovers and mergers since it was founded.
During the 1990s, AOL purchased smaller web companies, bigger brands and major Internet technologies. Does anyone remember CompuServe, ICQ and Netscape?
In 2001, AOL took over Time Warner, which was a symbol of the dot-com era, for $160 billion. The combined companies were worth at the time of the deal $360 billion. The two companies later split in 2009.
Years later, it returned to its previous strategy of buying smaller companies, such as Weblogs in 2005. In 2010, it bought TechCrunch and then just months later it took over the Huffington Post for $315 million.
AOL has been the talk of acquisition for a long time now. However, it was by a different entity: Yahoo. Since last year, there had been speculation that Yahoo would scoop up AOL. In January, there was a close deal, which immediately sent shares of both companies soaring. It didn’t happen.
Photo of Lowell McAdam via 9to5mac.com
