Verizon to buy AOL for $4.4bn

July 2015  |  DEALFRONT  |  MERGERS & ACQUISITIONS

Financier Worldwide Magazine

July 2015 Issue

July 2015 Issue


In a transaction that has been described as another significant step in building digital and video platforms to drive future growth, Verizon Communications Inc. announced it is to sign an agreement to purchase AOL Inc. for $50 per share – a deal that has an estimated total value in the region of $4.4bn.

Verizon’s agreement with AOL is expected to further drive its LTE wireless video and OTT (over-the-top video) strategy as well as supporting and connecting to its IoT (Internet of Things) platforms, creating a growth platform from wireless to IoT for consumers and businesses.

The transaction will take the form of a tender offer followed by a merger, with AOL becoming a wholly owned subsidiary of Verizon upon completion. Upon the announcement of the agreement, AOL’s stock price rose to 17 percent, whilst Verizon’s dropped only slightly.

Verizon has stated that it will 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.

As of September 2014, the American broadband and telecommunications company Verizon took on the mantle of the largest wireless communications service provider in the US. Its operations are divided into three business units: wireless (Verizon Wireless), residential and small business services (Verizon FiOS) and enterprise services (Verizon Enterprise Solutions).

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

“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.”

Verizon’s acquisition, AOL, is a leader in the digital content and advertising platforms space, and the combination of the two is poised to create a scaled, mobile-first platform offering directly targeted at a global advertising industry estimated to be worth nearly $600bn. 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.

“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,” said Tim Armstrong, AOL chairman and chief executive. “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.

“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. It’s really not about selling the company today; it’s about setting up for the next five to 10 years.”

Following the closing of the transaction, Tim Armstrong will continue to lead AOL operations.

The advisers for Verizon during the transaction were LionTree Advisors, Guggenheim Partners and Weil, Gotshal & Manges. For AOL the advisers were Allen & Company LLC and Wachtell, Lipton, Rosen & Katz.

The Verizon/AOL transaction is subject to the customary regulatory approvals and closing conditions and is planned to complete during the summer of 2015.

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BY

Fraser Tennant


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