AOL to buy The Huffington Post for $315 million
WASHINGTON/NEW YORK (Reuters) - AOL Inc will buy Arianna Huffington's influential website for $315 million, looking to the high-profile liberal pundit to rescue it from the dustbin of Internet history.
The move comes at a hefty premium. AOL is estimated to pay 32 times earnings before interest, taxes, depreciation and amortization for the Huffington Post, said Benchmark Co analyst Clayton Moran.
Similar content deals, such as Hellman & Friedman's acquisition of Internet Brands in September 2010, typically go for eight to 12 times earnings, said Moran.
"AOL just spent 40 percent of their cash for very little near-term return," said Moran.
The deal, which sent AOL shares up slightly after they fell as much as 4 percent in morning trade on Monday, will create a media group that will have a combined base of 117 million visitors a month in the United States, and reach 270 million people globally, AOL said in a statement.
Arianna Huffington, co-founder of The Huffington Post, will lead a newly formed The Huffington Post Media Group, which will integrate all Huffington Post and AOL content, as its president and editor-in-chief.
"I want to stay forever," Huffington told analysts on a conference call. "I want this to be my last act."
The deal is the latest move by AOL Chief Executive Tim Armstrong to rescue the dial-up Internet access business by turning it into a media and entertainment destination.
AOL suffered sharp declines in advertising sales and dial-up subscriptions in the fourth quarter of 2010, driving overall revenue down 26 percent.
About $300 million will be paid in cash in the purchase, which has been approved by the boards of directors of both companies and shareholders of The Huffington Post, though it still needs government approvals, AOL said.
The Huffington Post is expected to generate over $50 million in revenue for 2011 and at a $100 million run-rate for the next 12 months, with margins at around 30 percent, according to prepared remarks by AOL Chief Financial Officer Arthur Minson.
AOL is expected to incur abut $30 million in cash restructuring charges from the deal, which is expected to be closed in the late first, or early second quarter of 2011.
AOL executives said they forecast operating profit growth by 2013 in part because of the acquisition.
"It offers us an ability to accelerate our core strategy, accelerate the advertising strategy, and put a different brand ability in content media space," Armstrong said during a conference call.
HUFFPOST EXPANSION
The Huffington Post, started in 2005, has grown into one of the most heavily visited news websites in the United States.
"The Huffington Post has already been growing at a prodigious rate. But my New Year's resolution for 2011 was to take HuffPost to the next level -- not just incrementally, but exponentially," Huffington said in her blog.
She said the Huffington Post decided early this year to expand into more local news coverage, launch international sections (starting with HuffPost Brazil) and increase original video content.
Purchase by AOL, with its network of blogs such as AutoBlog, Music, AOL Latino, Black Voices, its local news operation Patch.com and new video-production studios, will allow these goals to be met, she said
"Far from changing our editorial approach, our culture, or our mission, this moment will be for HuffPost like stepping off a fast-moving train and onto a supersonic jet," she said.
"We're still traveling toward the same destination, with the same people at the wheel, and with the same goals, but we're now going to get there much, much faster."
(Additional reporting by Sakthi Prasad in Bangalore; writing by Anthony Boadle; Editing by Will Waterman, Dave Zimmerman)