Verizon Buys AOL, Plans To Create Digital Content Powerhouse

Telecom and wireless giant Verizon Communications Inc. announced after the close of market Tuesday that it has signed a pact to buy AOL Inc. for $50 a share, or $4.4 billion.

The deal brings AOL full circle from its deal nearly 15 years ago when it bought Time Warner for $165 billion in January 2000, months before the dotcom bubble burst and sent market evaluations for Internet companies like AOL, Yahoo Inc., Lycos and Excite.com crashing to earth.

AOL’s purchase price of $4.4 billion was seven times less than the $28 billion that Verizon Wireless paid for the former Alltel Corp. in January 2009. A year ago, Verizon added nearly 300 jobs in Arkansas as part of its expansion of sales, tech support and customer service operations.

Currently, Verizon continues to operate a call center at the former Alltel headquarters on the Arkansas River in downtown Little Rock, but company officials as part of corporate policy will not divulge the total number of current company employees in Arkansas “due to competitive reasons.”

Nearly a year ago, Verizon acquired Vodafone’s 45% stake in Verizon Wireless for $130 billion, consisting primarily of cash and stock. As a wholly owned entity of Verizon Communications, company officials said then that Verizon Wireless would be better equipped to take advantage of the changing competitive dynamics in the market and capitalize on the continuing.

VERIZON CEO: DEAL TO DRIVE GROWTH THROUGH DIGITAL AND VIDEO PLATFORMS
In its after-market deal with AOL, Verizon said it was taking another significant step in building digital and video platforms to drive future growth for Verizon.

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

Verizon officials said the deal with AOL further drives its LTE wireless video and OTT (over-the-top video) strategy. The agreement will also support and connect to Verizon’s IoT (Internet of Things) platforms, creating a growth platform from wireless to IoT for consumers and businesses,

By adding AOL’s digital content and advertising platforms space, Verizon said the combined company would create a scaled, mobile-first platform offering directly targeted at what eMarketer estimates is a nearly $600 billion global advertising industry.

Currently, 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.

“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,” McAdam said.

Tim Armstrong, the controversial AOL chairman and CEO, will continue to lead AOL operations after closing, officials. He said “the visions of Verizon and AOL are shared; the companies have existing successful partnerships, and we are excited to work with the team at Verizon to create the next generation of media through mobile and video.”

According to both companies, the deal will take the form of a tender offer followed by a merger, with AOL becoming a wholly owned subsidiary of Verizon upon completion.
The transaction is subject to customary regulatory approvals and closing conditions and is expected to close this summer. 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.

Verizon, headquartered in New York, currently has the largest wireless network in the U.S. with 108.6 million retail connections nationwide. In 2014, it had more than $127 billion in 2014 revenues and a workforce of 176,200.

DEAL DRAWS ATTENTION FROM CLASS ACTION, SHAREHOLDER RIGHTS LAW FIRMS
Almost immediately after the agreement between Verizon and AOL was announced following the close of market on Tuesday, several so-called shareholder rights law firms lambasted the pact almost before the deal was inked.

Former Louisiana Attorney General Charles Foti, who now runs New Orleans-based Kahn Swick & Foti LLC, said his firm was investigating the proposed sale of AOL Inc. to Verizon.

“Under the terms of the proposed transaction, shareholders of AOL will receive only $50.00 in cash for each share of ­AOL that they own,” Foti said in a statement that also served as invitation for AOL shareholders to seek legal counsel with the Louisiana law firm. “KSF is seeking to determine whether this consideration and the process that led to it are adequate, or whether the consideration undervalues the company.”

Another law firm, New York-based Robbins Arroyo LLP went one step further and said that AOL shareholders “have the option to file a class action lawsuit to ensure the board of directors obtains the best possible price for shareholders and the disclosure of material information.”

At its peak in December 1999, the former America Online operator had a market cap of more than $222 billion. In heavy trading that saw volume touch nearly 31 million shares on Tuesday, AOL’s stock rose nearly 19%, or $7.93 at $50.52. That would put the Internet operator’s value at $3.96 billion, giving AOL shareholders a 11% buyout premium based on Verizon’s asking price.

Verizon’s shares ended the day at $49.62, down 18 cents as more than 20.4 million shares traded hands.

Incidentally, cable giant Comcast is now seeking to buy AOL’s former partner, Time Warner, for $45 billion. Time Warner and AOL officially ended their disastrous marriage in 2009, after it became clear that the Internet email provider was vastly overvalued.

The Justice Department has recently confirmed that it plans to block the Comcast-Time Warner deal. The Verizon-AOL deal will also be reviewed by the Justice Department and the Federal Communications Commission, but ultimately there are no antitrust red flags that would cause regulators to halt the pact.