Who is AOL and Why is Verizon Interested?

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After rumors regarding a potential take over of AOL ( NYSE:AOL) by Verizon (NYSE:VZ) emerged last week, AOL’s share price rose more than 12.0% from 39.38 on Thursday to a high of 44.14 on on Friday 08 May. Fast forward to today (Tuesday, 12 May 2015). AOL shares are now trading at 50.52 after having reached a 52-week high of 50.75 earlier in the day when Verizon confirmed that the rumors were, indeed, true. That is going to be a bit problematic in that the $4.4 billion bid was priced at $50.00 per share – a good deal for shareholders last week; not so much today.

Who is AOL?

Whilst that question may seem absurd to some, it really is quite valid. Almost everyone on the planet knows what AOL was. But it is no longer, from a practical perspective, what it once was. If AOL were still only a dial-up.com, it would be a mere shadow of its former self. It’s not that AOL has abandoned its dial-up customers. AOL provided dial-up internet access to 2.2 million subscribers in the first quarter of 2015, on par with the last quarter of 2014, ┬ábut 33% less than the fourth quarter of 2011. That business may eventually disappear entirely, but don’t expect it to happen any time soon. Those 2.2 million subscribers generated more than $600 million in revenue for AOL.

AOL has morphed into a company whose products and services are keeping pace with the demands created by emerging technology. AOL evolved into a multinational mass media company during the early 2000’s, following its merger with Time Warner, Inc. (NYSE:TWX). During the second decade of this millennium, AOL has re-imagined itself as a digital media company and is the owner of subsidiaries such as TechCrunch, Moviefone, and the Huffington Post.

Why Is Verizon Interested?

Simply put, Verizon Chairman and CEO, Lowell McAdam, said this his company’s “vision is to provide customers with a premium digital experience based on a global multi-screen network platform. This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience.”

He added deeper insight, saying that “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.”

What Does the Rest of the World Think?

It appears that there are as many opinions as there are belly buttons. One headline today said, “Verizon gets a lot for little money in its deal for AOL,” citing AOL as “an excellent, low-risk, bolt-on acquisition for Verizon.”

On the other hand, another voice was heard with a headline that screamed, “Verizon is actually paying through the nose for AOL,” hypothesizing that “Verizon is likely doing a deal because buying always seems easier than building yourself or, just as likely, to prove to Wall Street that it is serious about being more than just a cable, Internet and phone service provider. Neither is a great reason for a deal.”

AOL investors seem to think it is a good deal. AOL shares closed a few minutes ago at 50.52.

 

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