Verizon, the American telecommunications group, is buying AOL for an agreed $4.4bn (£2.8bn). Verizon will pay $50 per share for AOL, an 18 per cent premium to Monday’s closing price.
Verizon is banking on AOL’s digital video and advertising technology to ensure that it remains able to compete in the growing mobile video market.
The deal completes a renaissance for AOL. It began life in 1989 as Quantum Computer Services, before many people outside the world of academic computing had any idea what the internet was. Its name was changed in 1992 to America Online, and by the end of the century it had about 20 million subscribers to its dial-up internet service.
That AOL still survives, never mind that it made a profit of $125m in 2014, may come as a surprise to some. The company became the poster child for the excesses of the first tech boom, using its inflated stock price to merge with film and television giant Time Warner in 2001 in a deal worth $183bn. Shortly after the merger, the combined companies’ market capitalisation soared to more than $260bn, only to come crashing down as the dotcom bubble burst.
Time Warner finally demerged AOL in 2009, and since then, the company has outperformed the S&P 500 index with little fanfare. On top of its mobile video technology AOL also owns some well-known content providers including Huffington Post, TechCrunch and Engadget. AOL’s first-quarter results, revealed last week, comfortably beat Wall Street revenue expectations.
Most industry observers believe that mobile video, whether combined with advertising or not, is the most likely growth area in telecommunications in the near term. In a statement on the deal, Verizon said the online market research group eMarketer estimated that the current market for mobile video advertising was worth “almost $600bn per year”. AOL’s proprietary video technology is seen as one of the most advanced and competitive platforms.
Much of the credit for the re-emergence of AOL is likely to go to the current chief executive, Tim Armstrong, who will remain with the company as it transitions into a subsidiary of Verizon. The deal is due to complete in the summer.
In a television interview with the US business network CNBC, Mr Armstrong said: “These are the two biggest growth markets in the world: video and mobile. We have built our systems, our talent and the global scale of what we are doing in that direction. Verizon has been one of our biggest, best partners… We share a combined vision.”
Lowell McAdam, the chairman and chief executive of Verizon, 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.”