BUSINESS

Verizon To Buy AOL In $4.4 Billion Deal

05/12/2015 07:15 am ET | Updated May 12, 2015

Verizon announced Tuesday morning that it plans to buy AOL for $4.4 billion.

The all-cash deal between the telecom giant and the owner of The Huffington Post will be completed this summer, pending regulatory approvals.

aol 770

The entrance to AOL headquarters at 770 Broadway in New York City on May 12.

Lowell McAdam, Verizon chairman and CEO, said in a press release that the merger will help "provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience."

"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," McAdam stated. "AOL's advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams."

lowell mcadam

Lowell C. McAdam, chairman and chief executive officer of Verizon Communications.

AOL CEO Tim Armstrong said he will continue to lead the company once the deal goes through.

"The leadership at AOL is staying and I am staying -- enthusiastically, and we made that part of the deal," he wrote in a memo to employees early Tuesday morning. "We know their team well and they know our team well. The cultures share very similar values and are both working on very similar ways to do good while doing well."

Armstrong also noted that the deal may mean better wages and benefits for AOL employees.

At a town-hall meeting with employees, Armstrong said the company had no plans to move from its New York headquarters, located in three floors on 770 Broadway on the edge of Manhattan's East Village. He said AOL would operate largely as a standalone division of Verizon, and none of its brand names would change.

AOL stock rose nearly 19 percent to $50.59 by mid-afternoon on Tuesday. Verizon shares fell nearly 1 percent to $49.55.

"For you this means growth, it means mobile, and it means compensation that will be equal or better to your AOL compensation. Your benefits will not change in 2015. We will eventually go on Verizon’s benefit plan, but that won’t happen until 2016 or later and we will work with Verizon to make sure the benefits are strong and cover important areas of people's lives," Armstrong wrote in the memo. "Your job and what you do on a daily basis should be enhanced by the market opportunity this deal is targeted to capture. The simple answer to the question of 'what does this mean for you?' should be, 'I just got more resources, more support and more growth opportunity.'"

The deal comes 15 years after AOL’s catastrophic merger with Time Warner. On the heels of the dot-com bubble burst, resulting in a $98.7 billion loss in 2002, the combined company was forced to write down the value of AOL, creating the biggest annual corporate loss in history.

In 2009, Time Warner finally spun off AOL. The company began investing heavily in media properties. AOL acquired TechCrunch in 2010. A year later, it purchased The Huffington Post for $315 million.

By 2013 -- when ad sales for online video climbed 19 percent to $2.8 billion, according to the Interactive Advertising Bureau -- AOL began investing heavily in video products. That year, it bought the programmatic video ad platform Adap.tv for $405 million. A month later, HuffPost launched HuffPost Live, its streaming video network. Last month at the 2015 Digital Content NewFronts -- a convention for media companies to show off new content to advertisers -- AOL promoted a slate of new reality show programs starring celebrities such as James Franco and Oscar-winner Jared Leto.

In April, AOL launched One, an automated platform for buying ads across different media. The service, which provides open data to ad buyers, pits AOL against tech goliaths Facebook and Google, which limit the data clients can use.

457540646

AOL CEO Tim Armstrong said he will stay on.

“The decision to enter into an agreement with Verizon was made over a long and thoughtful time period and both companies see significant opportunity to service consumers and customers in a differentiated and exciting way,” Armstrong told employees. “On a personal level, the decision to go forward with an agreement was predicated on giving our talent the best opportunity to build a multi-decade business that would be deeply growth oriented and aimed directly at the platform shift that video and mobile are offering the world -- today and 20 years from now.”

In recent years, investors have urged AOL to merge to Yahoo, the troubled online media and tech giant. As recently as January, the activist investor Starboard Value LP sent a letter to Yahoo CEO Marissa Mayer, advising her to consider a deal with AOL.

Still, AOL's cash-cow remains its dial-up business, which had 2.2 million subscribers at the end of 2014. Subscription revenue reached $606.5 million last year, comprising about 24 percent of overall sales.

It's unclear whether Verizon will sell off its publications, the biggest three of which are HuffPost, Engadget and TechCrunch. AOL has had serious discussions to spin off HuffPost to German publishing giant Axel Springer, according to Re/code co-editor Kara Swisher, a highly respected digital media reporter. Facing declining print ad sales in Germany, the publisher is adding digital properties to its portfolio, most recently by partnering with Politico to launch a European edition.

"We've spoken to partners about content and scaling," Armstrong told Re/code. "Obviously we've seen a lot of interest in the content brands we have. So over the course of the summer, stay tuned."

At the company meeting Tuesday, Armstrong touted the company's editorial properties, including HuffPost, as the crown jewels that attracted Verizon.

"You're going to be a company that does everything from NFL live games to HuffPost Live," he said, referring to Verizon's NFL Mobile streaming app.

Still, the merger would mark the second time in less than a year that Verizon owned a media property. Last year, the telecom giant launched SugarString. The tech site was shuttered in December after drawing fire for refusing to let its reporters write about net neutrality or National Security Agency spying, two hotly debated issues in which Verizon held stake.

Here is Tim Armstrong's full email to employees:

AOLers –-

As you have heard me say many times over the last 5 years since we became an independent AOL, we are building toward becoming the largest media technology company in the world. While there are search platforms, social platforms, and commerce platforms, we have built a very meaningful media platform and AOL today is a media platform company powering our brands and the brands of over 30,000 partners.

If there is one key to our journey to building the largest digital media platform in the world, it is mobile. Mobile will represent 80% of consumers’ media consumption in the coming years and if we are going to lead, we need to lead in mobile. Over the last 18 months we set a goal of moving AOL into a leading position in mobile, mobile video, and mobile registered consumers. We are approaching 400 million global consumers, we have built one of the best advertising platforms in the world, and we have one of the most talented teams in the world -- and now it is time for us to fully open up the mobile frontier.

Today, we are announcing that the largest and most innovative wireless and cable company -– and the one investing the most in high quality mobile content -– is acquiring AOL with the strategy of building the biggest media platform in the world. The company is Verizon and the deal will game-change the size and scale of AOL’s opportunity. Just as AOL has propelled The Huffington Post, Adap.tv, TechCrunch, and other companies we have acquired, Verizon will propel AOL and comes to the table with over 100 million mobile consumers, content deals with the likes of the NFL, and a meaningful strategy in mobile video.

The decision to enter into an agreement with Verizon was made over a long and thoughtful time period and both companies see significant opportunity to service consumers and customers in a differentiated and exciting way. On a personal level, the decision to go forward with an agreement was predicated on giving our talent the best opportunity to build a multi-decade business that would be deeply growth oriented and aimed directly at the platform shift that video and mobile are offering the world -- today and 20 years from now.

There are two important questions you might have at this point in the letter:
1. What does this mean?
2. What does this mean for me (meaning you)?

The deal means we will be a division of Verizon and we will oversee AOL’s current assets plus additional assets from Verizon that are targeted at the mobile and video media space. The deal will not change our strategy -- it will expand it greatly. The deal will give our content businesses more distribution and it will give our advertisers more distribution and mobile-first features. The deal will add scale and it will add a mobile lens to everything we do inside of our content, video, and ads strategy.

For you this means growth, it means mobile, and it means compensation that will be equal or better to your AOL compensation. Your benefits will not change in 2015. We will eventually go on Verizon’s benefit plan, but that won’t happen until 2016 or later and we will work with Verizon to make sure the benefits are strong and cover important areas of people's lives. Your job and what you do on a daily basis should be enhanced by the market opportunity this deal is targeted to capture. The simple answer to the question of “what does this mean for you?” should be, “I just got more resources, more support and more growth opportunity.”

The leadership at AOL is staying and I am staying -- enthusiastically, and we made that part of the deal. We have the opportunity to build a unique and globally scaled media technology company with the scale and resources we need to make that happen. Verizon and AOL are very large partners today -- in content, in ads, and in the technology. We know their team well and they know our team well. The cultures share very similar values and are both working on very similar ways to do good while doing well. Diversity and women’s leadership are at the top of both companies’ agendas and we look forward to having a consumer and industry impact on those important issues.

The future in front of AOL and the industry requires scale, mobile, and video – and partnerships. In our lifetime, we will see the connection of the world on very large and very fast networks – and to play in that world with our strategy requires us to take the natural steps to secure our ability to shoot for the stars. This deal is aimed at the stars and we are going to pursue the joint vision of building the most significant media platform in the world.

I have been a buyer of AOL over the last 5 years –- and that is an investment in one thing -- our talent. We have reviewed every hire coming into the company over the last 5 years and we have taken extraordinary risks and faced extraordinary challenges over the last 5 years. There is nothing more meaningful than watching our team turn-around this great company and restoring it to growth when most people had left it for dead.

AOL is back and now we are joining forces with Verizon to build the best media technology company in the world. Let’s mobilize. -- TA

Suggest a correction
108 Comments

CONVERSATIONS