Verizon to buy AOL for $4.4 billion in push for mobile ads

Verizon chairman and CEO Lowell C. McAdam. (Bloomberg News Photo by David Paul Morris)

NEW YORK – Verizon Communications has agreed to buy AOL in a deal valued at $4.4 billion that intensifies the battle for advertising on mobile devices.

Verizon, the largest U.S. wireless provider, gets two of AOL’s technologies: its mobile streaming service, featuring live TV, original shows and pay-per-view, and its ability to automatically send targeted ads to mobile devices.

As the world embraces mobile with increasing enthusiasm, the deal gives Verizon new revenue streams at a time when its main business faces increasing competition from challengers such as T-Mobile US Inc. It also directly pits the company against two leading Web ad companies, Google and Facebook.

“They want to integrate advertising and content programming with their wireless network,” Roger Entner, an analyst with Recon Analytics based in Dedham, Massachusetts, said of Verizon. “It’s an ambitious plan. The mobile advertising market is dramatically dominated by Google.”

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The carrier is getting its hands on AOL just before the introduction of its own mobile video-streaming service, which could come as early as next month. Verizon will pay $50 a share, a 17 percent premium over AOL’s stock price on Monday, and AOL Chief Executive Officer Tim Armstrong will continue to lead AOL’s operations after the deal is completed, the companies said Tuesday in a statement.

AOL today is a much different company now than it was 15 years ago, when the Internet portal famous for intoning “You’ve got mail” at log-in agreed to merge with Time Warner Inc. It was one of the world’s largest deals and became one of the largest failures. Two years later, the value of the combined company had dropped by two-thirds and the merger ended in a spinoff six years ago. The company, under Armstrong, has since bought sites like the Huffington Post and TechCrunch, and expanded its mobile content.

“The deal means we will be a division of Verizon and we will oversee AOL’s current assets plus additional assets from Verizon that are targeted at the mobile and video media space,” Armstrong said in a memo to employees. “The deal will add scale and it will add a mobile lens to everything we do inside of our content, video and ads strategy.”

In a saturated wireless market in the U.S., Verizon, with more than 100 million monthly wireless subscribers, is battling for customers with smaller and more nimble rivals like T-Mobile. One way to differentiate itself is its planned mobile video streaming service, which will be one of the increasing number of packages targeting Americans who don’t want to pay for the traditional pay-TV bundles anymore. The carrier has been planning a service for as early as June, a person familiar with the talks has said.

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Verizon’s push into mobile video will mark the largest attempt to tap new revenue sources beyond the calling and data services it sells to its wireless subscribers, Entner said.

“Verizon had the early lead in mobile advertising with the right vision and good assets behind it,” Entner said. “Then Google came in and bought AdMob and completely upended the market. With this deal, Verizon is trying to turn back the clock and get control of the mobile value stream.”

Verizon said it plans to fund the deal with cash on hand and commercial paper. The transaction is expected to be completed by the end of the summer, the companies said.