Arianna Huffington Wins Verizon-AOL Deal
Whatever else Verizon’s purchase of AOL for $4.4 billion means, the big winners seem to be the Huffington Post.
Some folks have all the luck.
Huffington Post namesake Arianna Huffington, who sold her digital media company to AOL for an eye-popping $315 million only four years ago, has once again fallen into a giant tub of butter.
She and her staff of editors, writers, and online videographers and anchors are, by most accounts, the big winners in the $4.4 billion deal, announced Tuesday morning, for Verizon to swallow AOL whole, attracted by the much smaller company’s rapidly expanding mobile-friendly video platform and programmatic advertising business—by which ad sales are targeted algorithmically by computer.
According to industry sources, Huffpo is positioned either to benefit from a fresh investment of tens of millions in hard cash from the $204 billion telecomm behemoth or else be sold to, or merged with, another media company at a rumored $1 billion valuation (though some regard that number as “insanely optimistic,” in the words of one Huffpo insider).
AOL chief executive Tim Armstrong, who presided over the December 2009 spinoff from Time Warner, is a close second in the winner’s circle, seeing his net worth rise $60 million in just the 24 hours from Monday to Tuesday—given his six percent ownership stake—from Verizon’s $50-a-share acquisition offer.
As for historically troubled AOL—a brand which, 15 years after the fact, remains indelibly linked to the ruinous merger with Time Warner, an of act of corporate abandon that ultimately vaporized $125 billion in shareholder equity—the implications are less certain.
“This deal does nothing for AOL as a brand,” said a knowledgeable investor, who spoke to The Daily Beast on condition of anonymity. “The AOL brand is as dead today as it was yesterday—you can decide how dead that is.”
Still, in an interview Tuesday with The Daily Beast, Time Warner Chairman and CEO Jeffrey Bewkes—who six years ago hired Armstrong to revive Time Warner’s troubled subsidiary as it spun off as an independent company—enthusiastically applauded the Verizon deal.
“We all woke up this morning, saw this, and basically we high-fived each other,” Bewkes said, noting that the strategy to spin off AOL, rather than sell it outright and take an income tax hit, was the right one to create value for Time Warner and AOL shareholders.
The fact that the company is today selling at more than a billion dollars over its estimated market cap at the time of the spin-off, when the stock was in the 20s and later dipped to 11, validates that judgment, Bewkes argued. “This is exactly what we said would happen. Remember that great Stevie Wonder song? New York City is ‘just like I pictured it’!”
Bewkes added: “When we did this, neither Tim nor I had an explicit plan or agreement to have AOL, once it was spun, necessarily merge or get bought by another company. We knew it was a reasonable possibility.”
Referring to Rupert Murdoch’s $80 billion takeover bid last year after Time Warner spun off Time Warner Cable and Time Inc., Bewkes said: “And, by the way, we knew that spinning off cable, magazines and AOL would make Time Warner itself a potential target, which happened when Murdoch showed up…But we did all these things with the knowledge, as any banker can tell you, that if put a clear asset together in the market, that’s likely to get consolidated.”
Prominent tech venture capitalist Alan Patricof, who was present at the creation of AOL as one of its original investors, also endorsed the Verizon acquisition.
“I think everybody’s a winner,” Patricof told The Daily Beast. “One and one equals three, in this case. It brings two different organizations together with different expertise…Verizon is more and more a wireless carrier. AOL is a content/advertising play for the most part. And I think it brings a new kind of energy and talent to Verizon.”
Patricof predicted that Verizon would let AOL be AOL and not meddle. “They would be crazy to,” he said.
Former AOL investor Clinton Yara—who until last year managed a portfolio that owned 7 percent of the company, and cashed out in the $40-$50 range—said that Armstrong, who was announced Aol.’s leader for the foreseable, won’t stick around beyond six months or a year, but instead pocket his winnings and then look for a big media company to run.
Yet Armstong is said by an informed AOL source to have signed a long-term contract with Verizon on Monday night.
Another investor, a rare wet blanket during what otherwise was a day of cheerleading on Wall Street and on CNBC—where the tall, toothy, tieless Armstrong was ready for his close-up—cautioned: “Is the ad-tech business a sexy brand? I don’t think so. The days of AOL being a big important consumer brand are long over, and this deal is an additional nail in the coffin.”
Yet this same investor described the Verizon acquisition as a “win-win” for HuffPo: “There are two very clear-cut scenarios here. One, does Verizon want to keep Huffington Post? And two, do they want to sell it? If they keep it, there’s obviously going to be much more money, maybe an infusion of a couple of hundred million dollars, which would be good because AOL couldn’t invest anything because they were basically out of cash.
“If they don’t want to keep it, it will be sold, and that’s also a good thing for Huffington Post. All Huffington Post has to do is sit back and watch the bouncing ball for a little bit and then decide what they want to do. Verizon can sell it or spin it off and find a new financial or strategic partner. Axel Springer”—the German media conglomerate that digital doyenne Kara Swisher identified Monday as potential buyer—“is a good name.”
Huffington declined to comment for this story, explaining that she was on a flight to Seattle for the Microsoft CEO Summit. “So sorry,” she added in an email. “There is nothing more to say beyond what Tim said this morning on CNBC.”
The 44-year-old Armstrong, a brilliant salesman who made his first fortune, pre-AOL, as the head of ad sales for Google, evangelized on CNBC: “If you look at AOL over the last five years… we turned the company around. We outperformed the S&P 500 for the last five years, and when you look at where we are today and where we’re going, we’ve made AOL as big as it can possibly be in today’s landscape.”
Armstrong added: “But 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.”
And despite Swisher’s multi-sourced and apparently authoritative reporting to the contrary, Armstrong insisted in an interview with Huffpost Live: “AOL will always be an owner of HuffPost. Verizon will always be an owner of HuffPost.”
Both inside and outside AOL that bold assertion was greeted with appropriate skepticism; when rumors surfaced in January that Verizon was kicking the tires, Armstrong repeatedly and categorically denied that discussions were underway.
A Huffpo editor said Tuesday morning’s news came as a surprise to many at the office, but that “after the initial shock, a lot of the anxiety gave way to, ‘This could be a good thing.’”
The editor said: “I got an email on the way into the office that said, ‘Let’s mobilize.’”
Among the staff, “It’s pretty clear they’re going to spin us off, specifically, at this point,” the Huffpo editor said. “The feeling is that that’s a surefire thing.”
The editor added: “That Axel Springer idea makes a lot of sense. They sound like they’re hungry to get into digital right about where we are. And they’re raring to diversify. You saw what they did with Politico Europe”—a new outlet that launched in April as a partnership between the Washington-based media company and the German one.
An AOL spokesman said Armstrong was in back-to-back meetings and unavailable for comment on Tuesday.