Bertelsmann selling shares back to AOL

Media giant to create Internet portals

In a move to raise money for its own Web ventures, Bertelsmann AG is expected to announce today plans to sell its half of AOL Europe back to America Online in a cash and stock deal valued at as much as $8.5 billion.

The move would confirm reports last month (Daily Variety, Feb. 8), that the German media giant feels it no longer needs to own an Internet service provider as part of its extensive portfolio and instead intends to sell its books, magazines, music and movies on other leading dot-coms.

Bertelsmann may also create its own Internet portals to compete with AOL, using the cash from the AOL deal to expand into those arenas. The media group already plans to raise additional funding through a series of public stock offerings of its Internet subsids Lycos Europe and BOL.com.

Shares of European dot-coms are only beginning to go public and rake in the cash, with U.K. reservation site lastminute.com this week earning 733 million pounds ($1.15 billion) in its first day of trading.

Bertelsmann sold 7.2 million shares of AOL last year to fund its dot-com efforts.

Phoning it in

Bertelsmann had originally been in talks with mobile phone giant Mannesmann and French conglom Vivendi to buy the stake.

AOL Europe currently has 3.8 million subscribers, compared to AOL North America’s 22 million members, and trails European Internet service provider T-Online, owned by giant Deutsche Telekom AG.

However, the sale wouldn’t signal an end of a Bertelsmann-AOL partnership. Both companies plan to begin a marketing pact, valued at north of $150 million, that would make Bertelsmann a preferred partner on AOL Europe, giving it prominent placement to sell its products to AOL Europe’s subscribers.

Cross-promotion

In return, Bertelsmann will promote AOL across its media properties, which includes Random House, and music labels Arista Records and RCA Records, as well as CLT/Ufa SA, Europe’s largest commercial broadcaster.

The final value of the complex AOL Europe deal could fluctuate between $6.75 billion and $8.5 billion, based, in part, on a series of put and call options. Payment will be made in cash, stock or a combination of the two.

AOL will likely pay for Bertelsmann’s stake in separate transactions over several years, with the first payment not due until 2002.

Bertelsmann began its relationship with AOL in 1995 when it acquired a 5% stake in AOL for $50 million under Bertelsmann chairman and CEO Thomas Middelhoff’s recommendation at the time, and subsequently saw the investment grow with AOL’s surge on Wall Street.

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