Verizon to buy AOL in $4.4 billion mobile video push

(Reuters) - Verizon Communications Inc said on Tuesday it will buy AOL Inc for $4.4 billion, turning the biggest U.S. wireless carrier into a leading provider of content and video for the web and mobile phones.

The $50-per-share offer represents a premium of 17.4 percent to AOL's Monday close. AOL and its properties, including the Huffington Post, TechCrunch and Engadget websites, would become a Verizon subsidiary, with AOL Chief Executive Officer Tim Armstrong staying in his role.

Armstrong, who has been trying to build up AOL's expertise in mobile advertising technology, sees mobile representing 80 percent of media consumption in coming years.

"If we are going to lead, we need to lead in mobile," Armstrong said in a memo to employees on Tuesday.

Verizon has over 100 million mobile consumers, content deals with the likes of the National Football League and "a meaningful strategy" in mobile video, Armstrong said.

For Wall Street, the deal is about the technology.

"The primary attraction of AOL was the technology it has developed for selling ads and delivering online and mobile video," Wells Fargo Securities analyst Jennifer Fritzsche wrote in a note.

AOL shares jumped 19 percent to $50.69, while Dow component Verizon was down 0.5 percent at $49.51.

Armstrong told Reuters that talks between Verizon and AOL started last year. He met with Verizon CEO Lowell McAdam at the Allen & Co Sun Valley conference last July over lunch about how to further their partnership.

Armstrong said he has a multiyear commitment to stay with Verizon and run AOL as a separate division but declined to give further details.

Yahoo Inc , which some activist investors had suggested should buy AOL, traded up 0.8 percent at $43.95.

The deal was the latest example of convergence between the U.S. media and wireless industries. AT&T Inc , the second biggest U.S. telecom company, is also betting on video, agreeing to buy No. 1 U.S. satellite TV provider DirecTV , for $48.5 billion. The deal is pending.

Advertising has become a major revenue stream for AOL, helped by the acquisition of automated advertising platforms such as Adap.tv.

Demand for the real-time bidding platform that helps advertisers place video and display ads helped AOL beat sales and profit forecasts in its most recent quarterly report last Friday.

For AOL, the deal caps a years-long period of reinvention into one of the most successful advertising technology companies.

At the peak of the dot-com boom, AOL, whose dial-up Internet service once counted tens of millions of subscribers, used its elevated stock price to buy movie, television and publishing conglomerate Time Warner Inc in what turned out to be one of the most disastrous corporate mergers in history.

Time Warner spun off AOL into a separate company in 2009. From its 2011 low to Tuesday, AOL stock has jumped more than threefold, leading some analysts to say Verizon was overpaying.

"We feel that Verizon paid a hefty price ... for what we believe to be an unproven programmatic ad-tech platform in the nascent video ad-tech space," Macquarie Capital analysts wrote in a note.

Verizon was showing signs of desperation as its core wireless business comes under pressure, the analysts said. It will need to buy telecommunications spectrum aggressively over the next two to three years to accommodate rising mobile video traffic.

Verizon said it expects the deal, which includes about $300 million in AOL debt, to close this summer.

LionTree Advisors, Weil Gotshal & Manges and Guggenheim Partners advised Verizon. AOL's advisers were Allen & Co Llc and Wachtell Lipton Rosen & Katz.

(Reporting by Devika Krishna Kumar and Abhirup Roy in Bengaluru, Jennifer Saba in New York,; Writing by Nick Zieminski; Editing by Savio D'Souza, Saumyadeb Chakrabarty, Don Sebastian and Jeffrey Benkoe)

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