Verizon Communications has agreed to buy AOL for about US$4.4bn in an effort to boost its LTE wireless video and OTT strategy. The transaction, which values AOL shares at US$50 each, will take the form of a tender offer followed by a merger, the US…
Verizon Communications has agreed to buy AOL for about US$4.4bn in an effort to boost its LTE wireless video and OTT strategy.
The transaction, which values AOL shares at US$50 each, will take the form of a tender offer followed by a merger, the US telecoms giant said in a statement. AOL will then become a fully-owned subsidiary of Verizon.
Wells Fargo Securities analyst Paul Young said the transaction values AOL at about US$3.9bn, or 7.7x its 2015 consensus EBITDA estimate. The price tag represents a 17.4% premium to AOL’s closing price on 11 May, he noted.
The deal is expected to close this summer, subject to closing conditions and regulatory approvals.
New York-based Verizon expects to fund the deal with cash on hand and commercial paper.
Verizon chairman and CEO Lowell McAdam said the acquisition “supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience”.
He added that the company has been investing in emerging technologies, including Verizon Digital Media Services and OTT, which tap into the market shift toward 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 said the combination of the two companies creates a “scaled, mobile-first platform offering” aimed at what eMarketer estimates is a nearly US$600bn global advertising industry.
The telco described the target’s key assets as its subscription business; portfolio of global content brands such as The Huffington Post, TechCrunch and AOL.com; its OTT original video content; and its advertising platforms.
Verizon said the purchase will also support and connect to its Internet of Things platforms, creating a platform from wireless to IoT for both individuals and businesses.
AOL’s current chairman and CEO, Tim Armstrong, will remain at the helm of the company.
Verizon’s advisors for the deal were LionTree Advisors, Guggenheim Partners and Weil, Gotshal & Manges. AOL’s advisors were Allen & Company and Watchell, Lipton, Rosen & Katz.
Verizon noted that it continues to expect to return to pre-Vodafone transaction credit ratings in 2018 or 2019.
The company acquired Vodafone’s 45% stake in Verizon Wireless for US$130bn in February 2014.
Jennifer Fritzsche, also a Wells Fargo analyst, said her team believes AOL’s prime attraction was the technology it has developed for selling ads and delivering online and mobile video.
“Verizon has been focused on delivering OTT video via mobile, with plans to launch a service this summer focused on short-form live content … With the addition of AOL, Verizon should be well-positioned to benefit from an advertising model in which [it] can gather valuable information for advertisers and content providers.”
This, she added, should give the telco greater bargaining power in the TV, mobile media and advertising spaces.
Fritzsche also believes the deal demonstrates Verizon and T-Mobile US’ increasingly different strategies.
“While T-Mobile believes there is a greater need to own more physical infrastructure (through DTV), Verizon is building up more assets to strengthen its ‘mobile-first’ OTT initiative – with advertising playing a key role,” she said.
