Verizon, one of the largest telecom companies in the US, has announced their intentions to buy mass media corporation AOL for $4.4 billion. In the wake of reports of the merger, AOL's stock increased by more than 17 percent, while Verizon's stock went down a moderate 1 percent.
"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 Verizon's chief executive Lowell McAdam.
AOL co-founder Steve Case took to twitter to announce his approval of the deal, saying "The transaction will be completed this summer and will take the form of a tender offer followed by a merger, after which AOL will become a wholly owned subsidiary of Verizon."
"Verizon is a leader in mobile and OTT (over-the-top video) connected platforms, and the combination of Verizon and AOL creates a unique and scaled mobile and OTT media platform for creators, consumers and advertisers," said Tim Armstrong, AOL chairman and CEO in his announcement of the merger. Armstrong is expected to retain his position at the helm of AOL after the deal is finalized.
Armstrong also said that this deal was the next step for his company to continue expanding. "If you look at AOL over the last five years ... we turned the company around. We outperformed the S&P 500 for the last five years, and when you look at where we are today and where we're going, we've made AOL as big as it can possibly be in today's landscape," he said. Armstrong hinted that the deal was more about the future preservation of AOL rather than bolstering the company's current outlook. "But if you look forward five years, you're going to be in a space where there are going to be massive, global-scale networks, and there's no better partner for us to go forward with than Verizon."
Armstrong publicly dismissed rumors of a merger with either Verizon or Yahoo earlier this year. "There's always speculation around us because we have taken a company that was not doing well and ended 2014 with two straight years of growth," he told CNBC on Jan. 7. "We have a lot of partners coming in to talk to us, but AOL has a unique vision, a unique strategy and we've stayed on strategy."
As part of the agreement, Verizon will gain full control over AOL’s media holdings, including Engadget, TechCrunch and the Huffington Post. Because AOL's mobile and video technologies were the key components of the deal, there is speculation that Verizon might sell the blog site the Huffington Post, which has an estimated net worth of $1 billion. Verizon will also take over AOL's ever diminishing yet still profitable dial-up Internet service that is used primarily by residents in remote areas that can't get broadband Internet yet.
Industry insiders seem to have mixed views about the viability of the merger between Verizon and AOL. David Bank, managing director at RBC Capital Markets said that the merger makes sense for Verizon because it would expand the company's digital advertising reach. "This is less about content than about a lot of these mature media platforms needing … new ad tech," Bank said. "Our sense of the industry is, when you look at these partnerships, what's driving them is not so much the content as having a platform for programmatic." Not all views of the merger were positive, with some industry insiders questioning what Verizon, and particularly their shareholders, stand to gain from the deal. Craig Moffett of Moffett Nathanson Research said that the deal might not have an impact for Verizon. "AOL, when this deal is finished, is going to be something like 1 percent of the enterprise value of Verizon, so it's a small transaction," he said.