Wednesday, February 09, 2011

The AOL-Huffington Post Deal

In Monday's post, I commented dismissively on AOL buying the Huffington Post with this passage,

"AOL, now spun back out from the disastrous TimeWarner linkage, just announced this morning that it is buying the online Huffington Post for $315MM. Does anyone really care that much? What does AOL bring to the table?"

Since then, various pundits have weighed in on the deal. Tim Armstrong and Arianna Huffington appeared on CNBC to tout the deal. Armstrong somewhat disingenously claimed there was "no risk" to the deal, while Huffington claimed that those who took AOL stock would outperform the cash recipients. This despite some observers chortling that the HuffPost owners had learned from TimeWarner-AOL and demanded mostly greenbacks this time.

As the Wall Street Journal noted,

"No doubt Huffington Post Chairman and co-founder Ken Lere, an AOL veteran who saw the Time Warner nightmare firsthand, knew the dangers of accepting too much stock in AOL."

Regarding Armstrong's claim, check out the nearby price chart showing that the new AOL has languished since its inception. Armstrong, I am sure, badly hopes that the Huffington Post's readership can work magic on AOL's ad revenues. Putting Arianna in charge of a bigger chunk of content? Who knows how that will turn out? She's known for liberal politics, despite what Armstrong yammered about new content 'beyond left and right.'

Given the only-recent profits realized by Huffington, and just a $50MM revenue estimate for FY2011 for the online media property, the $300MM in cash plus $15MM of AOL equity seems a pretty rich price. I always wonder, in these situations, why the acquirer doesn't just form a marketing alliance, exchanging cash for product and/or access? Thus saving shareholders' the risks of actual acquisition, while extending financial benefits to the media property, and forcing continued performance for the deal to continue.

But, as I noted in my initial comment, so what? What's really clear is that the four owners of Huffington got a nice $300MM for a recently-, barely-profitable online business. Sounds a lot like TimeWarner-AOL, only one company removed, doesn't it? What AOL gets is anybody's guess. But investors clearly didn't like the deal. And it's going to take a lot to get AOL anywhere near the S&P since its rebirth.

Personally, I don't think Armstrong and the addition of the Huffington Post properties, including Arianna herself, are going to do the trick.

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