Verizon's $4.4 billion bet on AOL has some industry watchers expressing concern that, while Verizon needed to make a strategic move, buying AOL was not the right one. Bobbi Rebell reports.
Verizon is betting big - $4.4 billion big - that AOL will help it take its business to the next level. The company paying a 17 percent premium to push into mobile video and targeted advertising. Research firm IHS says, global revenue from online video ads will reach $19 billion by 2017 from about $11 billion last year, cutting into television ad revenue. Reuters Breakingviews columnist Rob Cyran doesn't like the deal and isn't a fan of AOL. SOUNDBITE: ROB CYRAN, REUTERS BREAKINGVIEWS COLUMNIST (ENGLISH) SAYING: "All of their profits, essentially, still come from dial-up, and that is a dying business. They have been rolling these profits into other businesses, and Verizon wants one of these, it's called Ad Tech. What they do is, they match advertisers to viewers on line. The problem is that Google and other companies are in this space, so it's tough business to succeed in." AOL and its properties, which include the Huffington Post, TechCrunch and Engadget websites will become a Verizon subsidiary, with AOL CEO Tim Armstrong staying on. Shares of AOL jumped 18 percent to trade a bit higher than the $50 offer price on Tuesday. Sean Egan, CEO of Egan Jones Ratings, thinks AOL could end up a two-time loser when it comes to merger activity." SOUNDBITE: SEAN EGAN, CEO, EGAN JONES (ENGLISH) SAYING: "AOL has the potential for being a serial killer in the sense that Time Warner had a very poor experience with AOL. If you remember, Time Warner paid a huge price for it, about 12 years ago, and it disemboweled that company. AOL has not grown much of its share price since May of 2013 up until the past week, so they are another business that is having some significant problems. No surprise that he is advising Verizon shareholders to reject the deal. SOUNDBITE: SEAN EGAN, CEO, EGAN JONES (ENGLISH) SAYING: "We characterize it as a strategic blunder. When you step back and think about what Verizon's business is, it is communications and network. This is a step away from that business." He does however believe the deal will go through, as do most analysts, who do not expect another bidder to emerge.