AOL-Google Deal Appears Close

Despite reports that Microsoft (MSFT) was the front-runner to land a partnership deal with AOL, the Wall Street Journal is now saying that Time Warner is in exclusive talks with long-time partner, Google (GOOG), and a deal could be finalized as early as next week.

This news is not surprising to me. If you were running AOL and wanted to make a deal to maximize the potential for you to regain relevancy in the Internet world, who would you partner with? You’d be crazy not to go with Google at this point in time, especially since Google and AOL have already been working together for years.

The market likely won’t boost Google shares very much, if at all, on this news (especially if the financial terms look generous given many people have valued AOL at zero) but I think this is a big deal for Google and will generate meaningful incremental revenue for years to come.

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3 Thoughts on “AOL-Google Deal Appears Close

  1. Jack Miller on December 16, 2005 at 7:05 PM said:

    Your thoughts on this one are my thoughts; almost exactly.

    I have noticed an increasing number of news sources in my Google sidebar lately. These include magazines and networks.

    When you click on an article and find a well formatted page with links to other sections of a magazine, it is easy to spend time “flipping through”. This year, I subscribed to a couple of online magazines but, after a few months, I stopped downloading them. Now, I get most of my news through links from Google. I don’t want to read all of Business Week magazine but, when a relevant article shows up in my box, I visit Business Week. Eyeballs are the key to making money in media.

    TWX has a boat load of content. Google can put this content in front of billons of people. I bought more Google today. Google has a 1% share of advertising. This share is bound to go to 5% within a few years. The potential is huge.

    None of my accounts hold TWX. However, I agree that the company appears to have made the correct decision in regard to AOL. Should TWX, working with Google, successfully monetize just the film library, the revenues should be huge.

    The clear reason to sell the small piece of the company is to give the market a valuation anchor. If AOL is worth $20 Billion then TWX is worth at least $24 per share. I just may build a position in the stock.

    Thank you for the update.

  2. Chad Brand on December 17, 2005 at 9:09 AM said:

    I agree with your assessment of TWX. Peridot owns the stock, and I think it is worth somewhere between $20 and $25 per share, most likely toward the upper end of that range. Cable, though, is holding it back and that is the main issue right now.

  3. Jack Miller on December 18, 2005 at 9:18 PM said:

    Yes, cable revenue growth has hurt TWX but TWX is building share quickly in VOIP. A major Skype and all others battle is ahead but TWX has momentum.

    John Battelle says $20 billion for AOL, only 3 times revenue, is reasonable. He thinks that with Google driving growth, both the revenues and the multiple will expand. He suggest that AOL might move to a $60 Billion cap at spin off. Google would make $2 Billion and TWX would make a bundle. Google only took in about $2 Billion on its own IPO.

    The WSJ confirms that the deal allows Google to index the film library. I think this is big. The system of the future is basically set. It is now just a matter of content coming on board; a big win for Google.

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