Verizon Communication is America’s biggest mobile carrier. With its robust contender AT&T giving the former a real run for its money by providing its customers with top-notch video streaming services, Verizon Communication has been trying time and again to do the same for its massive user base.
To compete with AT&T and its video streaming platform, U-verse, Verizon Communications has decided to buy AOL for an astonishing $4.4 Billion. On the other hand, this shows how serious Verizon Communication is concerning the competition in the carrier service providing industry. It also may be an indication that AOL’s glorious days of the past may be ready to make a re-appearance.
America Online started in 1983 as Control Video Corporation (CVC) and ran Gameline, an online service for Atari Games. It was, however, rebranded and renamed to AOL as the 1980s did not do bring much profit to the company.
If you ever had to connect to a DSL connection, you will remember AOL. AOL was a rather common household internet connectivity provider, and nobody thought anybody offered internet connectivity as easily as AOL did. But, AOL got lost somewhere along the way as internet connectivity changed its ways.
How much did the deal cost?
The deal cost Verizon Communications a total of $4.4 Billion at $50 per share. AOL’s shares closed at $42.59 on Monday although they did reach $50.12 in premarket trading. This deal, if made will mean that AOL will acquire all shares of AOL from the open market without having to require AOL’s board of directors’ approval. Therefore, the deal necessitates a premium to be paid to the shareholders in order to make the deal acceptable to them. Verizon Communications is reportedly offering to pay a 17 percent premium on the Monday’s closing price and expects the deal to close this summer.
What will this acquisition do for Verizon Communications
Verizon communication aims to make video streaming over the air readily available for its users. Although AOL’s days as a DSL connection provided ended long ago, the company has managed to survive its rough years. AOL has a web of blogs and mainly earns via advertisements. Moreover, it features some fairly good video perks that are just the reason that Verizon Communication set foot to buy it in the first place.
Verizon Communications, has the time and again made a mention of the unconventional forms of video streaming and plans on making video streaming a more viable option for its LTE service. It plans on bringing forward a “mobile first” platform with AOL’s video content available for Verizon’s customers over its LTE service.
When compared to AT&T’s “making more physical assets”, the approach taken by Verizon Communication at once, seems to be a risk taken after some analysis. It will help the company progress towards its mobile first initiative with advertisement playing an important role.
Are AOL’s Good days coming back?
AOL has seen good days and it has had some bad ones. To one market giant to a long-forgotten company, it has almost had it all. However, if there is one thing about AOL, it would be that it has fought to survive. It has rebranded, re-strategized, but it has managed to make it through the worse. But are the good old days coming back, would be too soon to say.
AOL has been through some mergers; sadly all of them did not turn out quite well. In 2000, AOL merged with Time Warner but contrary to the assumption that the merger would help stabilize it, the merger could not do much for AOL. In 2005, 5 percent shares of AOL were bought by Google for a sum of $1 billion which brought the total value of the company to $ 2billion.
The Tim Warner merger was discontinued in 2009. After that, CEO AOL, revised company policy to put more focus on advertising, social integration, and content. This resulted in AOL buying Huffington Post and the mobile photo sharing app, Hipster along with a list of other acquisitions.
Despite many difficulties, Armstrong was able to get AOL through the dark first decade of the 2000s for it to finally make some progress in 2013 when the company announced its first quarterly growth. Since then, AOL has been doing comparatively well, from making $2.2 in revenue in 2012 and then making a leap to $2.5 million. In 2015, the company reportedly generated a profit of $125.6 million.
What do Analysts have to say?
Jennifer Fritzsche, Fargo Securities analyst, pointed out the apparent difference in the strategies followed by AT&T and Verizon Communications. As mentioned earlier the former has tasted for having more physical assets while the later believes in building more assets. Both companies, however, are competing for the same thing; over the air video content’s ready availability to their users.
Which approach is better only time will tell. But, for the time being Verizon Communications has taken a wise step by not building infrastructure from scratch but by trying out what is already available.
Despite what everyone has to say or what the market trends are, AOL and Verizon Communications are determined to make it work out. AOL’s CEO Armstrong was quoted saying that both the companies share the same goal. He further added “the companies have existing successful partnerships, and we are excited to work with the team at Verizon to create the next generation of media through mobile and video.
Verizon Communications has also been ambitious regarding the deal with Lowell McAdam; Verizon chairman and CEO said “Verizon’s vision is to provide customers with premium digital experience based on a global multiscreen network platform.” McAdam further said, “This acquisition supports our strategy to provide a cross-screen connection for consumers, creators, and advertisers to deliver that premium customer experience.”
Both companies, however, are silent on the matter of AOL’s trademark DSL connection providing services as none have issued any statement as to how will they handle the issue. It will be worth mentioning here that AOL will become a wholly owned subsidiary of Verizon following the approval of the deal by the subsidiary bodies however Tim Armstrong will continue to lead the branch.