What an AOL Garage Sale Would Look Like
If AOL goes private, here are the properties on the chopping block
Today, the New York Post reported that AOL is exploring the idea of going private in a deal with a private equity firm. "Private-equity firm KKR has been floated as a prospective partner for AOL, which has shed close to $1 billion in stock value since it was spun out of Time Warner in December 2009," reported Claire Atkinson. Officially, AOL says no deal is in the works but its plunging stock price has led many financial and media analysts to believe the company is a prime "takeover target." So if AOL went to a private equity firm, what would happen with its many technology and media properties? Here's what's buzzing in the blogosphere:
Chopping up the company If a private equity firm buys AOL, Reuters' Felix Salmon expects AOL's various properties to get spun off. "I’d do a sum-of-the-parts analysis and rapidly come to the conclusion that Tim Armstrong’s strategy is too much risk for too little potential reward. Take AOL, and sell off the non-core assets — things like Moviefone, MapQuest, AIM, and Advertising.com," he writes. Henry Blodget at Business Insider also predicts a chop up:
The PE guys will almost certainly spin off MapQuest. And fire a few thousand more people. And sell AOL's access business. Another question will be what they do with AIM (AOL Instant Messenger) and AOL Mail. Both could go to Yahoo, Microsoft, or Google, presumably.
Separating dial-up In a report titled, "Will AOL Go Private?" Barclays Capital analyst Ronald Josey said AOL's dial-up service, which serves 3.4 million subscribers, could be worth $850 million. "We believe AOL could be exploring the potential to sell [its Internet] access [business] and in so doing is working through other options, including a take-private scenario... If AOL were to sell its access business, we could envision an approach similar to that of the sale of its German access businesses in 2007 whereby AOL divested its subscriber billing relationships, but retained the right to continue delivering content." Felix Salmon agrees that selling the dial-up unit makes sense:
The ruthless logic of the market would seem to imply that the best thing to do with the dial-up business and the content business is to tear them apart. The dial-up business, on its own, is ripe for a managed decline, where you extract as much money as possible before it finally dies. Private equity companies do that kind of thing very well.
What about the big media brands? Henry Blodget wonders what will happen with the bigger media brands AOL owns:
If they spin out Huffpo and TC, will Arianna and Mike Arrington go with them? Or will the sale release them from their contracts and lead to an immediate and full payout?
Will Mike Arrington buy TechCrunch back?
Will Arianna retake the helm of Huffpo?
What happens first? Felix Salmon advises to sell the whole company right off the bat:
There’s a lot of deals to be done here, then. But the easy way to do it would be to simply sell all of AOL to KKR right now, at an attractive premium to the current share price. Then let KKR sell off all the content bits and pieces to Yahoo and/or others, leaving it with a dial-up business throwing off lots of juicy, high-margin cash.