On May 12, Verizon Communications announced that it will acquire AOL for US$4.4 billion to promote its growth ambitions in the mobile video and advertising market, according to the Wall Street Journal online report.
The deal will provide Verizon with a large amount of exclusive content, "continuing Verizon's strategy for developing LTE video and terminal services." Verizon said that the purpose of this acquisition is to enhance the mobile Internet business and broaden the advertising business, and said that the acquisition will greatly promote its own wireless video and OTT business.
Reported that Verizon Communications will use cash to buy AOL, the latter's valuation of 50 US dollars per share, compared to AOL's 3-month volume weighted average price premium of 23%. Affected by this transaction, AOL shares rose by 18% to 50.27 U.S. dollars in pre-market trading on Tuesday, while Verizon Communications shares fell by 1.6% to 49 U.S. dollars.
As part of the transaction, AOL will become a subsidiary of Verizon Communications, responsible for AOL's existing assets and Verizon Communications' mobile and video media assets. The acquisition is expected to be completed this summer and needs regulatory approval. After the transaction is completed, AALCEO Tim Armrm will continue to lead AOL’s operations. Verizon Communications is expected to fund the acquisition transaction through existing cash and commercial paper.
Armstrong announced the sale of the company in an internal memo sent to employees. "This transaction means that we will become a division of Verizon Communications. We will be responsible for AOL's current assets and Verizon's mobile and video media assets. Our strategy will not only change because of this transaction, but will significantly expand. It provides more distribution channels for our content business and provides our advertisers with more distribution and mobile-first features. This transaction expands our size and we do it under content, video and advertising strategies. Everything needs to be considered for the mobile side,†he said.
Armstrong said in an interview that the merger of Verizon Communications and AOL will "create what I consider America's largest mobile and video business." He believes that AOL is now not only able to compete with digital advertising giants Google and Facebook, but also in the rapidly emerging Internet TV, mobile media and advertising. "This transaction really gives us a place in the media and technology industry in the future," he said.
Verizon Communications aims to enter the highly competitive online video market. The acquisition will allow Verizon Communications to acquire advanced technologies that AOL has developed to sell ads and deliver high quality online video advertising.
According to TechCrunch analysis, AOL's ability to attract Verzion will not be limited by its rich original content across multiple platforms.
First, AOL has established a mature advertising business. Its model has solved the problem of advertising pricing in new forms such as video and mobile Internet. At present, the advertising business has brought considerable revenue to AOL, and it is also the fastest growing sector in U.S. online revenue. However, the advertising services on its own platforms and third-party websites are not well integrated. Verzion, who took over, may be able to make up for this deficiencies by producing original content in collaboration with other content producers and attracting potential audiences to AOL’s own platform.
In addition, AOL’s communications services are also one of the reasons why Verzion is tempted. AOL’s communications business performance has been stagnant, but it still contributed to the bulk of AOL’s online revenue, which generated revenue of $182.6 million in the last quarter. Although it fell 7% year-on-year, this result was achieved with almost no new investment. Thus, Verzion can fully use the foundation laid by AOL to direct its customers to its broadband network and other businesses.
Verizon Communications has stated that it plans to launch a video service in the summer of 2015 with a focus on mobile devices. Although Verizon Communications did not disclose further details, the company’s CFO, Fran Shammo, stated last month that the new service will provide paid, free, and ad-supported content and will not attempt to replicate the traditional television model.
For AOL, the sale has opened a new chapter for the company. After starting as a pioneer in the dial-up business and getting involved in one of the most catastrophic corporate mergers and acquisitions in history, AOL has repositioned itself as an important player in the digital media and marketing industry in recent years. AOL was once a company with more than 20 million dial-up subscribers, and merged with Time Warner in 2000, with a transaction volume of 183 billion U.S. dollars. However, after the dot-com bubble burst, AOL's value quickly declined and it eventually split from Time Warner in 2009.
Talking about the impact of Verzion and AOL’s online marriage, foreign media commented that this acquisition will not have any substantial impact on American consumers, but the online advertising market may be revived; for those who have Google, Facebook This is undoubtedly good news for people who are worried about the hegemony of advertising.
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