Verizon Communications Inc. agreed to buy AOL Inc. in a deal valued at $4.4 billion, getting access to advertising technology that will help it make more money from mobile video.
Verizon, the largest U.S. wireless provider, is buying AOL just as it prepares to start a mobile video streaming service featuring live TV, original shows and pay-per-view. The carrier will pay $50 a share, a 17 percent premium over AOL’s stock price on Monday, and AOL Chief Executive Officer Tim Armstrong will continue to lead AOL’s operations after the deal is completed, the companies said Tuesday in a statement.
By pairing AOL’s so-called programmatic ad technology — which uses high-powered machines to buy and sell ad space — with mobile content, Verizon will get a new revenue stream at a time its main business faces increasing competition from challengers like T-Mobile US Inc.
AOL has been expanding its role as a provider of ad technology in recent years — further away from its roots as an Internet-access provider — and last month unveiled technology that helps marketers decide where to best spend their money, putting it in direct competition with two leading Web ad companies, Google Inc. and Facebook Inc.
“They want to integrate advertising and content programming with their wireless network,” Roger Entner, an analyst with Recon Analytics based in Dedham, Massachusetts, said of Verizon. “It’s an ambitious plan, the mobile advertising market is dramatically dominated by Google.”
AOL’s shares jumped as much as 19 percent to $50.70 in early trading, slightly above Verizon’s offer price. Verizon dropped 0.4 percent to $49.60.
AOL today is a much different company now from 15 years ago, when it agreed to merge with Time Warner Inc., in what was one of the world’s largest deals, and also the largest takeover failures. Two years after the deal, the value had dropped by two-thirds and the merger ended in a spinoff six years ago. The company, under Armstrong, has since bought sites like the Huffington Post and TechCrunch, and expanded its mobile content.
“The deal means we will be a division of Verizon and we will oversee AOL’s current assets plus additional assets from Verizon that are targeted at the mobile and video media space,” Armstrong said in a memo to employees. “The deal will add scale and it will add a mobile lens to everything we do inside of our content, video, and ads strategy.”
In a saturated wireless market in the U.S., Verizon is battling for customers with smaller and more nimble rivals like T-Mobile. One way to differentiate itself is its planned mobile video streaming service, which will be is one of the increasing number of packages targeting Americans who don’t want to pay for the traditional pay-TV bundles anymore.
The carrier has been planning a service for as early as June, a person familiar with the talks has said.
Verizon’s push into mobile video will mark the largest attempt yet to tap new revenue sources beyond the calling and data services it sells its wireless subscribers, Entner said.
“Verizon had the early lead in mobile advertising with the right vision and good assets behind it. Then Google came in and bought AdMob and completely upended the market,” Entner said. “With this deal, Verizon is trying to turn back the clock and get control the mobile value stream.”
Verizon said it plans to fund the deal with cash on hand and commercial paper. The transaction is expected to be completed by the end of the summer, the companies said.
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