AOL’s Low Takeout Premium Still Shareholders’ Best Bet: Real M&A
2015-05-12 17:48:51.556 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
(Bloomberg) -- The takeover premium Verizon Communications
Inc. is offering may seem low to AOL Inc. shareholders. But it’s
probably the best they’re going to get.
Verizon offered to buy the digital-advertising company for
$50 a share in cash, just 24 percent higher than its average
price in the previous 20 days. AOL’s stock rose above the offer
price Tuesday, signaling that investors view it as low. The $4.4
billion transaction values the business at about 11 times
earnings before interest, taxes, depreciation and amortization,
making it also one of the cheapest U.S. deals this size in 2015,
according to data compiled by Bloomberg.
While AT&T Inc. and Yahoo! Inc. have been seen as possible
suitors for AOL, competing bids may be unlikely. AT&T is in the
midst of trying to win approval for its $66 billion purchase of
DirecTV, the country’s largest satellite-TV service. And
Armstrong said last month on CNBC that a merger with Yahoo is a
"dead notion."
“With respect to the purchase price, we find it a bit
light,” James Cakmak, a New York-based analyst for Monness,
Crespi, Hardt & Co., wrote in a report Tuesday. “Other bidders
may come into play, but we believe the likelihood is low at this
point.”
Before the deal was made public, analysts were projecting
AOL shares would climb to around $48 on their own in the next 12
months, estimates compiled by Bloomberg show. Verizon’s offer
gives shareholders a chance to cash out sooner and at a slightly
higher price.
AOL traded at $50.50 on Tuesday at 1:41 p.m. in New York.
Tech Convergence
This deal differs from many other recent big acquisitions,
in which buyers are justifying paying higher valuations by
touting big cost-cutting opportunities. Instead, Verizon is
looking to take AOL’s automated, or “programmatic,”
advertising technology and pair it with mobile content. This
would give Verizon a new avenue in which to grow as its heft on
the wireless side makes it challenging to get clearance from
regulators to buy more subscribers.
“The goal isn’t to slash apart AOL,” Sachin Shah, a
special situations and merger arbitrage strategist at Albert
Fried & Co., said in a phone interview. “Everything is
converging and this is how Verizon converges. If this works out,
they’re going to buy more content.”
Tim Armstrong, who has turned AOL around from an antiquated
Internet dial-up company, is going to stay running the business
when it becomes a piece of Verizon. The largest U.S. wireless
provider plans to start a mobile-video streaming service
featuring live TV, original shows and pay-per-view to help it
compete with companies such as Netflix Inc. Americans are
increasingly spending more time online than watching television
the traditional way.
Programmatic-ad buying -- which uses high-powered machines
to buy and sell ad space -- may generate $20.4 billion by 2016,
or 63 percent of digital-display ad sales in the U.S., up from
45 percent in 2014, according to EMarketer. In addition to AOL’s
ad business, it owns news sites Huffington Post and TechCrunch.
For Related News and Information:
Verizon Agrees to Acquire AOL in Deal Valued at $4.4 Billion
You’ve Got Merger. What Twitter is Saying About Verizon-AOL
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Phil Serafino
2015-05-12 17:48:51.556 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
(Bloomberg) -- The takeover premium Verizon Communications
Inc. is offering may seem low to AOL Inc. shareholders. But it’s
probably the best they’re going to get.
Verizon offered to buy the digital-advertising company for
$50 a share in cash, just 24 percent higher than its average
price in the previous 20 days. AOL’s stock rose above the offer
price Tuesday, signaling that investors view it as low. The $4.4
billion transaction values the business at about 11 times
earnings before interest, taxes, depreciation and amortization,
making it also one of the cheapest U.S. deals this size in 2015,
according to data compiled by Bloomberg.
While AT&T Inc. and Yahoo! Inc. have been seen as possible
suitors for AOL, competing bids may be unlikely. AT&T is in the
midst of trying to win approval for its $66 billion purchase of
DirecTV, the country’s largest satellite-TV service. And
Armstrong said last month on CNBC that a merger with Yahoo is a
"dead notion."
“With respect to the purchase price, we find it a bit
light,” James Cakmak, a New York-based analyst for Monness,
Crespi, Hardt & Co., wrote in a report Tuesday. “Other bidders
may come into play, but we believe the likelihood is low at this
point.”
Before the deal was made public, analysts were projecting
AOL shares would climb to around $48 on their own in the next 12
months, estimates compiled by Bloomberg show. Verizon’s offer
gives shareholders a chance to cash out sooner and at a slightly
higher price.
AOL traded at $50.50 on Tuesday at 1:41 p.m. in New York.
Tech Convergence
This deal differs from many other recent big acquisitions,
in which buyers are justifying paying higher valuations by
touting big cost-cutting opportunities. Instead, Verizon is
looking to take AOL’s automated, or “programmatic,”
advertising technology and pair it with mobile content. This
would give Verizon a new avenue in which to grow as its heft on
the wireless side makes it challenging to get clearance from
regulators to buy more subscribers.
“The goal isn’t to slash apart AOL,” Sachin Shah, a
special situations and merger arbitrage strategist at Albert
Fried & Co., said in a phone interview. “Everything is
converging and this is how Verizon converges. If this works out,
they’re going to buy more content.”
Tim Armstrong, who has turned AOL around from an antiquated
Internet dial-up company, is going to stay running the business
when it becomes a piece of Verizon. The largest U.S. wireless
provider plans to start a mobile-video streaming service
featuring live TV, original shows and pay-per-view to help it
compete with companies such as Netflix Inc. Americans are
increasingly spending more time online than watching television
the traditional way.
Programmatic-ad buying -- which uses high-powered machines
to buy and sell ad space -- may generate $20.4 billion by 2016,
or 63 percent of digital-display ad sales in the U.S., up from
45 percent in 2014, according to EMarketer. In addition to AOL’s
ad business, it owns news sites Huffington Post and TechCrunch.
For Related News and Information:
Verizon Agrees to Acquire AOL in Deal Valued at $4.4 Billion
You’ve Got Merger. What Twitter is Saying About Verizon-AOL
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Phil Serafino