M&M Global explores some of the reasons behind the rumours about Verizon’s takeover of AOL that have emerged this week.
What’s the news?
According to a report in Bloomberg News, global communications and technology company Verizon has approached AOL with an interest in a potential acquisition or joint venture with the company.
But the communication business has apparently made no formal proposal as of yet, and, speaking at the Citi Media Conference in Las Vegas on Tuesday, Verizon’s chief executive Lowell McAdam laughed off the rumours, saying: “If I had a dollar for every company we are supposed to buy, I’d be in good shape financially.”
If it’s true, why is Verizon interested?
Since Tim Armstrong became chief executive of AOL in 2009, the company has changed beyond recognition to become one of the most success ad tech companies in the world.
AOL now offers a fully integrated ad platform, providing more convenience for advertisers looking to cut out the cost and time involved with using various middlemen. In its 2014 third quarter revenues, AOL reported a rise in global ad revenue of 18% to $473.4m thanks to a major surge in programmatic revenues. Third party platforms – which include programmatic – saw a revenue increase of 44% to $215.1m, assisted by AOL’s acquisition of its programmatic platform Adap.TV in 2013.
Along with AOL’s impressive ad platform, it also has extensive digital video and online content. According to a report in the Wall Street Journal last year, Verizon is planning to launch its own digital video service by mid-2015, and AOL already has the perfect video capabilities needed. According to a comScore report released in November, AOL’s video ads reach 53.8% of the US population.
Why else would Verizon be interested in AOL?
Along with AOL’s online content, mobile video and advertising, a takeover would also allow Verizon to gain AOL’s paying subscribers and internet brands such as TechCrunch and The Huffington Post, which bring in over 200 million visitors a month.
Verizon’s interest in AOL may also come down to its desire to compete more with its rival AT&T, which acquired DirecTV last year.
What chances of a merger or acquisition happening?
Well, in terms of finances, Verizon appear to be in a pretty stable condition to make this kind of move. AOL rose by 3.4% on the New York stock exchange to $46.25 a share, giving the company a market value of around $3.6bn. Verizon rose by 1% to $47.04bn, for a market value of about $195bn.
And although McAdam appeared to shut down any reports of an acquisition, he did leave the possibilities open for some sort of partnership: “We will be more of a partner with media companies rather than doing an acquisition. AOL along with lots of other media companies are potential partners for us.”