AOL Sells Bebo to Criterion for Less Than $10 Million (Update3)
(Updates share price in 10th paragraph.)
By Sarah Rabil and Douglas MacMillan
June 17 (Bloomberg) -- AOL Inc., the Internet company spun off from Time Warner Inc., sold its Bebo social-networking service to Criterion Capital Partners LLC for less than 2 percent of what it paid for the site two years ago.
AOL, which paid $850 million for the site, got less than $10 million for it, said a person familiar with the matter, who declined to be identified since the price wasn’t made public. AOL said in a filing today it expects to record a tax benefit this quarter of $275 million to $325 million from the sale.
The New York-based Internet company said April 6 it was weighing a sale or shutdown of Bebo. AOL said it wasn’t in a position to fund a turnaround at Bebo after losing ground to bigger social-networking rivals Facebook Inc. and News Corp.’s MySpace. The price AOL paid for Bebo included $766 million of goodwill, according to regulatory filings.
“Criterion Capital Partners are specialists in facilitating growth plans and turnarounds,” AOL Chief Executive Officer Tim Armstrong said today in a memo to employees. “For AOL, the transaction will also create a meaningful tax deduction.”
Criterion, a Los Angeles-based merchant-banking and financial-advisory firm, said the deal was led by managing partner Adam Levin, along with strategist Paul Abramowitz and web entrepreneur Richard Hecker. Criterion will take over Bebo’s global operations immediately and base the company out of San Francisco, according to a statement from the firm today.
‘Worthless’
Neither party will disclose the price, Criterion said. Criterion executives, including Levin, weren’t available to comment, said Jason Damata, an outside spokesman.
TechCrunch reported yesterday that Bebo was sold for $10 million or less.
AOL said it will treat the common stock of Bebo as “worthless” for tax purposes. The tax benefit from the sale is subject to review by the U.S. Internal Revenue Service. AOL said it will also test its goodwill for possible impairment charges this quarter.
AOL may begin to use the tax shield immediately and increase free cash flow “materially,” Clay Moran, an analyst with Benchmark Co., said today in a report.
AOL, which publishes sites such as MapQuest, Politics Daily and Lemondrop.com, rose 37 cents to $22.65 at 4 p.m. in New York Stock Exchange composite trading. The shares have lost 3.7 percent since the Dec. 10 spinoff from Time Warner.
Risky Acquisition
Time Warner CEO Jeff Bewkes has said he may have overpaid for Bebo, calling the May 2008 purchase the company’s “riskiest.” Bebo, founded in 2005, was bought when Randy Falco and Ron Grant were still running AOL. They left in March 2009 when Armstrong was named CEO.
Bebo’s worldwide unique visitors plunged more than 50 percent to 12.6 million in April from a year ago, according to ComScore Inc. Facebook had 519.1 million unique visitors in April, and MySpace drew 111.2 million.
AOL committed in April to offer Bebo’s U.S. employees severance agreements to remain with the business until a strategic decision was reached, according to AOL spokeswoman Tricia Primrose. AOL agreed to pay this severance to employees who stayed during the review period regardless of whether AOL decided to shut down or sell Bebo, she said.
“Substantially all” of Bebo was sold, with the exception of the division’s cash, some contracts and some furnishings in leased office spaces, Primrose said.
--Editors: Ville Heiskanen, Jerry Byrd
To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net; Douglas MacMillan in New York at dmacmillan3@bloomberg.net
To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net
MySpace logo
, the parent company of MySpace, announced Friday that Co-President  has decided to leave the  because he wishes to return to his home city of New York. MySpace is headquartered in , California.

MySpace was founded in 2003 by  and  and purchased for $580 million by News Corps. at the height of its popularity in 2005.  In recent years, however, MySpace has been losing out in monthly unique visitors to similar sites such as Facebook, Twitter, and YouTube.  According to , an Internet marketing research company that tracks website traffic, Facebook attracted 519 million unique visitors in April of this year, and MySpace just 111 million visitors.  In response, MySpace has been recently shifting its focus towards music, games, and videos, and plans to continue doing the same in the near future.

Meanwhile, another failing social network, Bebo, was sold for less than $10 million by AOL to hedge fund firm  this week. AOL acquired Bebo for $850 million in 2008. MySpace's reduced traffic and the departure of another executive have led industry insiders to draw comparisons between the two sites.

In April 2009, DeWolfe stepped down as MySpace's Chief Executive Office (CEO). He was replaced by former Facebook Chief Revenue Officer , but Natta held on to that position for just nine months. In February 2010, Hirschhorn was promoted from his position as Chief Product Officer along with Chief Operating Officer  to the position of co-president. The departure of Hurschhorn leaves Jones to continue on as sole president. MySpace have said they do not intend on replacing Hirschhorn.