Verizon Communications (NYSE:VZ), the largest U.S. wireless provider, agreed to buy AOL (NYSE:AOL) in a deal valued at $4.4 billion.
The acquisition will give Verizon access to AOL’s automated advertising technology and digital media clips that will help it make more money from mobile video.
Verizon will pay $50 a share, a 17 percent premium over AOL’s stock price yesterday. AOL shares were up 17.7 percent at $50.15 at 9:41 a.m. in New York, Verizon shares were down 1.5 percent at $49.05.
AOL Chief executive officer Tim Armstrong will continue to lead AOL’s operations after the deal is completed, the companies said in a statement today.
The all-cash deal includes about $300 million of AOL debt. AOL will become a wholly owned subsidiary of Verizon upon completion. The assets of AOL include its dial-up subscription business.
The deal also includes websites such as the Huffington Post, Techcrunch, Engadget, Makers and AOL.com.
AOL had only 0.74 percent of the $145 billion global digital advertising market in 2014, BBC News reported, citing eMarketer. Market leader Google had 31.4 percent market share last year, followed by Facebook with 7.9 percent.
Verizon said the deal would give impetus to its 4G wireless video and internet video ambitions, and also feed into its plans for capitalising on the so-called "internet of things".
Verizon plans to start a mobile video streaming service featuring live TV, original shows and pay-per-view. The carrier has been planning a service for as early as June, Bloomberg News reported, citing a person familiar with the talks.
"This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience," Verizeon CEO Lowell McAdam said in the statement.
Dollars spent on programmatic advertising will surge to $14.88 billion this year, according to research firm eMarketer. By next year, it will top $20 billion, representing nearly two-thirds of the display ad market.
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 deal marks a major turning point in the history of AOL, which many had left for dead just a few years ago, according to CNN Money.
In January of 2000, when the Internet was still relatively young and a large percentage of users depended on dial-up modems, AOL and its stock were flying high. It used that strength to strike a deal for old media company giant Time Warner, the owner of CNN, HBO, Warner Bros., and a number of other units it has since sold off. The deal was eventually judged to be among the worst mergers in corporate history.
AOL made the $182 billion deal with its shares that had become inflated in the Internet stock bubble. But by the time the deal closed in January of 2001, the bubble had burst and the deal was already in trouble.
The combined AOL Time Warner ended up reporting a record corporate loss of $99 billion in 2002, due to the reduced value of the company. The conglomerate eventually dumped the AOL unit in 2009, creating a stand-alone company.