Verizon Said to Approach AOL for Possible Takeover, Venture

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Verizon Communications Inc.
A customer walks into a Verizon Wireless retail store in Washington, D.C., U.S. Verizon is still paying off debt from buying Vodafone’s 45 percent stake in Verizon Wireless last year for $130 billion, and the company is stockpiling cash to acquire wireless spectrum in an auction that began in November. Photographer: Andrew Harrer/Bloomberg

Verizon Communications Inc. is exploring a potential acquisition or joint venture with AOL Inc. to help it expand mobile-video offerings, people with knowledge of the matter said.

The wireless carrier hasn’t made a formal proposal to AOL, and no agreement is imminent, said the people, who asked not to be named because the discussions are private. Speaking at a conference today, Verizon Chief Executive Lowell McAdam said the company isn’t having “significant acquisition discussions” and is more interested in partnerships with media companies and content providers, rather than buying them.

“AOL, along with lots of other media companies, are potential for us to do partnerships,” McAdam said.

Verizon is primarily interested in AOL’s programmatic advertising technology -- the automated buying and selling of ads online -- which could be paired with a future online-video product, two of the people said. With a takeover it would also gain paying subscribers and Internet properties including the Huffington Post.

AOL CEO Tim Armstrong has used digital-advertising acquisitions to transform it from the Internet portal once known for its “You’ve got mail” alerts. Verizon is seeking expertise in three areas: online content, mobile video and advertising, one person said, and a venture -- rather than a takeover -- would keep it focused in those areas.

‘Digital Response’

“Verizon needs a digital response and AOL has shown the best strategic foresight of navigating the digital-video world,” said Laura Martin, a senior analyst at Needham & Co. “Verizon can buy or build that, but it’s unlikely to build it fast enough.”

The company also has held talks with several of AOL’s peers about how to bolster those businesses, one person said.

AOL rose 3.4 percent to $46.25 a share in New York, giving the company a market value of about $3.6 billion. Verizon rose 1 percent to $47.04, for a market value of about $195 billion.

Spokesmen for Verizon and AOL declined to comment.

Chasing AT&T

Researcher EMarketer Inc. projected in July that mobile advertising would lead 2014’s rise in total media ad spending in the U.S., with advertisers spending 83 percent more on tablets and smartphones than they did in 2013 -- an increase of $8.04 billion. Verizon is looking to catch up with AT&T Inc. as wireless providers enhance their offerings. AT&T last year struck a $48.5 billion deal to acquire satellite TV provider DirecTV.

With a takeover, Verizon would also gain AOL’s 2.3 million paying members, in addition to Internet brands TechCrunch and Engadget. It’s unclear if Verizon is interested in those media properties, which draw more than 200 million unique visitors a month, the fourth-most in the U.S., behind Google Inc., Yahoo Inc. and Facebook Inc., according to November data from researcher ComScore Inc.

Once called America Online, AOL was one of the main portals through which people first accessed the Internet. Its trajectory peaked with a now-infamous $124 billion combination with Time Warner 15 years ago, after which it began losing customers to faster services from telephone and cable-television carriers.

After years of losses the merger was unwound with a spinoff in late 2009.

Some of AOL’s members still use its dial-up Internet service, though the company is winding down that business. If Verizon acquired the New York-based company, it could continue that process and convert some of those customers to its FiOS broadband service, one of the people said.

Verizon is dedicating three executives to help develop a mobile-video service and integrate acquired technology, known as OnCue, from Intel Inc. last year and EdgeCast Networks Inc. in December 2013. AT&T and The Chernin Group announced a joint venture to acquire and develop online-video services in April

2014.

AOL Transformed

Verizon is still paying off debt from buying Vodafone’s 45 percent stake in Verizon Wireless last year for $130 billion, and the company is stockpiling cash to acquire wireless spectrum in an auction that began in November. Both could hamper the New York company’s ability to make an acquisition, two people said.

AOL CEO Armstrong’s investments in ad technology have brought growth, with the promise of profits not far off. His largest transaction was 2013’s $418 million purchase of Adap.tv Inc., which matches advertisers and video publishers through an exchange.

The strategy is to make AOL a company advertisers use to automate their purchases of placements on websites and online videos across the Web. While ads are everywhere online, marketers have found it difficult to ensure their messages are getting in front of their ideal audiences, a dilemma AOL’s technology is meant to address.

Activist shareholder Starboard Value LP proposed last year that Yahoo explore a combination with AOL.

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