Telecom giant Verizon announced Tuesday it will be buying AOL for $50 per share, or about $4.4 billion. The transaction will be completed this summer and will take the form of a tender offer followed by a merger.
AOL will be a wholly-owned subsidiary of Verizon, according to today’s announcement.
“Verizon’s acquisition further drives its LTE wireless video and OTT (over-the-top video) strategy,” Verizon said in a statement. Lowell McAdam, Verizon chairman and CEO, said: “Verizon’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.”
McAdam added, “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. 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.”
Verizon and AOL have maintained a mobile search portal, which uses Bing, for several years …
AOL is a leader in the digital content and advertising platforms space, and the combination of Verizon and AOL creates a scaled, mobile-first platform offering directly targeted at what eMarketer estimates is a nearly $600 billion global advertising industry. AOL’s key assets include its subscription business; its premium portfolio of global content brands, including The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com, as well as its millennial-focused OTT, Emmy-nominated original video content; and its programmatic advertising platforms.
Tim Armstrong, AOL’s chairman and CEO, will remain at his position of operations leadership at AOL.
AOL’s stock was up more than 17 percent after the announcement. Verizon’s stock was down about 2 percent. “Verizon is a leader in mobile and Over the Top (OTT) connected platforms, and the combination of Verizon and AOL creates a unique and scaled mobile and OTT media platform for creators, consumers and advertisers,” Armstrong said in the announcement.
— Wall Street Journal (@WSJ) May 12, 2015
Verizon expects to fund the transaction from cash on hand and commercial paper. The company also continues to expect to return to pre-Vodafone transaction credit ratings in the 2018-2019 timeframe.
Transaction advisers for Verizon were LionTree Advisors; Guggenheim Partners; and Weil, Gotshal & Manges. AOL advisers were Allen & Company LLC and Wachtell, Lipton, Rosen & Katz.
Over-the-top content (OTT) refers to delivery of audio, video, and other media over the Internet without the involvement of a multiple-system operator in the control or distribution of the content like a cable TV provider. A copy providing OTT content is not responsible for the content, and is not able to control the viewing abilities, copyrights, and/or other redistribution of the content. The OTT model contrasts with the purchasing or rental of video or audio content from an Internet service provider (ISP), such as pay television video on demand from Comcast or an IPTV video service, like AT&T U-Verse.
Pipes and Content
Traditional Pipe and newer content or Platform models operate in the digital age. TV channels operate using the Pipe model where the producers and consumers or more clearly defined and limited. In contrast, YouTube operates on a content or platform model, which involves sharing monetization from multiple producers.
Verizon is seen as a robust network with their market eroding to competitors offering weaker networks at lower prices. AOL, originally a dial-up Internet service, is the butt of many jokes as the email service older people have clung to instead of moving to broadband and independent mail services such as Gmail. AOL has struggled to regain its reputation as a leading email provider service. However, AOL has developed a strong advertising network, and has acquired or developed content that is seen as having potential — including Huffington Post Media Group, Cambio, Engadget, Moviefone, Stylelist, TechCrunch, and its own AOL channels. MapQuest, the second-largest Internet mapping service after Google maps is also owned by AOL.
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