What Verizon Gets With AOL Acquisition

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Tuesday morning started off with a bang on the announcement by Verizon Communications Inc. (NYSE: VZ) that it will acquire AOL Inc. (NYSE: AOL) for $50 a share in a deal worth $4.4 billion. The wireless carrier will initiate a tender offer for AOL shares, followed by a merger that will make AOL a wholly owned subsidiary of Verizon.

In its announcement, Verizon said it is “building digital and video platforms to drive future growth” by making this acquisition. The company is getting both a content company and a mobile advertising platform that offers entry to a potentially more lucrative space than its carrier business. While not on the same scale as Comcast Corp.’s (NASDAQ: CMCSA) acquisition of NBCUniversal from GE, it reflects the same desire to expand beyond the fat pipes business.

AOL brings several content brands to the table, including The Huffington Post, TechCrunch, Engadget and AOL.com. All are digital properties that Verizon expects to drive its wireless video and over-the-top (OTT) strategy.

Verizon CEO Lowell McAdam said:

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.

Tim Armstrong, AOL’s CEO, said:

Verizon is a leader in mobile and OTT connected platforms, and the combination of Verizon and AOL creates a unique and scaled mobile and OTT media platform for creators, consumers and advertisers.

Verizon said it expects to fund the transaction from cash on hand, supplemented by commercial paper. The company noted that by 2018 or 2019 it expects to return to the credit ratings it maintained prior to its $130 billion acquisition of Vodafone.

AOL’s shares traded at $50.37 in Tuesday’s premarket, up more than 18% from Monday’s closing price of $42.59, in a 52-week range of $33.20 to $49.86.

Verizon stock traded down about 0.8%, at $49.58 in a 52-week range of $45.09 to $53.66.

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