Arianna Huffington to serve as head of Media Group
AOL is making its biggest bet yet that it can succeed as an online content company, announcing just after midnight Monday that it was acquiring the heavily-trafficked Huffington Post for $315 million.
Since being spun off from Time Warner in the fall of 2009, CEO Tim Armstrong has been a dealmaking machine, buying content companies as well as striking partnerships to build new audiences in everything from hometown news to women’s content to sports.
Of the Huffington Post deal, one investment banker not involved with the transaction said it “really is a bet the farm move.”
Armstrong has repeatedly said that his efforts are not a one-year-turnaround story, but at the same time it is not a five-year mission either.
“We believe (the HuffPo) deal is a score for AOL,” Armstrong said Monday morning on a conference call. “It will add significant acceleration to our company, our strategy and shareholder returns.” He said he was excited about having global, national and local content on the same platform and how a combination of the two companies will attract even more big brand marketers.
AOL will pay $300 million in cash on hand for the HuffPo, and the rest in stock in the form of AOL options for HuffPo employees. The Huffington Post, founded in 2005, is privately owned by co-founders Arianna Huffington and former AOL exec Kenneth Lerer and a group of investors.
Huffington will become prexy and CEO of the newly created Huffington Post Media Group, which will integrate AOL’s existing content with Huffington Post’s various sections. The partners said the combined entity would have a base of 117 million unique users per month in the U.S. and 270 million around the world.
Huffington said Monday “it was like stepping off a fast train and onto a super-sonic jet…It is amazing how aligned (the two companies) are. It’s just a perfect fit.” She said she has no plans to leave the company. “I told Tim I want to stay forever,” she said. “I want this to be the last act of my life.”
Executives said they expect the deal to close at end of the first quarter or at the start of the second quarter, with Armstrong adding that he expects the HuffPo to be fully integrated over the next 45 days. “This will have the smallest disruption for the size of any transaction that I’ve worked on,” he said.
The deal came together in the past month, as final deal terms were hammered out Sunday night while the rest of the country was glued to the Super Bowl. The surprise announcement came just after midnight.
AOL CFO Arthur Minson said the deal would allow for $20 million in annual cost savings. He added that he expects the HuffPo to generate $50 million in revenues this year and $10 million in operating profits. “We believe it will be at a $100 million revenue run- rate in the next 12 months and operating in the 30% margin range,” he said. “Even on a standalone basis, we think this is a very good deal for us financially.”
However, the compensation being paid to retain talent from all its deals, about $40 million in 2011, will strain AOL’s operating profits for the year, Minson said. AOL will most likely take a $30 million restructuring charge this year, Minson said.
He predicted that the company would again see growth in operating profits in 2012.
In the quarter ending Dec. 31, AOL reported that revenues dropped 26% to $2.4 billion, as AOL continued to lose subscribers and ad dollars. The company posted a net loss of $782 million for the year, versus a profit of $249 million the year before.
“Throughout you will see the contribution from The Huffington Post and other recent acquisitions, which we expect will accelerate the pace of our turnaround,” said Minson.
Huffington Post bowed at the height of the George W. Bush presidency as a kind of liberal antidote to the plethora of conservative voices online. The site has drawn an array of high-profile contributors from politics, entertainment and media over the years. But there had long been questions about the long-term viability of its online business model.
Huffington Post is averaging 25 million unique users a month, according to AOL. Its aud is growing a rate of 22% — a growth curve that AOL hopes to accelerate when it integrates with AOL’s video and content platforms. Among other initiatives, AOL has been investing in its Patch network of highly targeted local news sites, which will be a natural fit with Huffington Post’s news pages.
“The Huffington Post will continue on the same path we have been on for the last six years – though now at light speed – by combining with AOL,” said Huffington. “Our readers will still be able to come to The Huffington Post at the same URL, and find all the same content they’ve grown to love, plus a lot more – more local, more tech, more entertainment, more finance, and lots more video.”
For AOL, the deal with Huffington Post comes amid a slew of other content partnership deals for the Internet company that once defined the online realm but has struggled to redefine itself for a decade. Armstrong, a former top Google exec who took over AOL in 2009, has been pursuing a vision of AOL as a content company with myriad channels targeted to various content niches that can be bundled and sold to a range of advertisers.