“The visions of Verizon and AOL are shared.”
Those were the words of Tim Armstrong, AOL’s chief executive and chairman, following the sale of his firm to Verizon on Tuesday. A former Google employee, Mr Armstrong has done an outstanding job at AOL, but he may be too optimistic about Verizon’s prospects.
Just Random Thoughts?
You are entitled to wonder whether Mr Armstrong would use similar words if Google decided to launch a hostile bid for the new owner of AOL.
Verizon is moving into Google’s turf, but in doing so it runs the real risk of alienating the search engine behemoth, which is competing in a market where it dictates strategy and rules on a global scale — at least where it’s allowed to operate. That has become even more apparent today, soon after Verizon announced it would acquire AOL for $4.4bn (2.2% of Verizon’s market cap).
It also appears clear that the purchase of AOL would have not materialised had it not been for weakness in AOL’s equity valuation — this is essentially a bolt-on deal and is less strategic that many may think.
The digital elements attached to the deal don’t strike us as being particularly attractive, in spite of the words used by Mr Armstrong. There remains a doubt that Verizon and AOL together won’t be able to compete with Google in the digital advertising field.
“If there is one key to our journey to building the largest digital media platform in the world, it is mobile,” Armstrong reportedly said in an email to staff. “Mobile will represent 80% of consumers’ media consumption in the coming years and if we are going to lead, we need to lead in mobile.”
So, let’s focus on another very serious matter: how likely is a fully-fledged takeover of Verizon by Google?
The possibility of such a tie-up has been discussed since the net neutrality debate started a few years ago. That would be the best way for Verizon to deliver value to its shareholders, whose holding are still worth 20% less than at the time of the tech bubble in 1999.