US telecommunications giant Verizon has snapped up AOL for $4.4bn (£2.8bn), in a deal worth $50 per share at an $8 premium.
AOL generates revenues from advertising space on its own websites, such as the Huffington Post, Engadget, and TechCrunch, selling ad space for other websites, and from its legacy dial-up internet business.
Verizon is likely looking to create a full service media and communications company, following the example of UK companies such as Sky and BT, where users get their phonelines, internet, and television all through the same provider.
By bundling all the services and entertainment together, Verizon could create a desire for more super HD (4K) content, and then be able to charge users to upgrade their packages to be able to able to stream it smoothly.
In a statement, Verizon said:
“Verizon’s acquisition further drives its LTE wireless video and OTT (over-the-top video) strategy”
AOL still makes much of its profits from the legacy dial up internet subscribers, where its 2 million users generated $182m for the company last quarter, and AOL has invested little in time or management to these users in recent years. It is likely that Verizon also hopes to convert these users into broadband subscribers.
AOL has been acquired before, previously merging with Time Warner during the dotcom bubble in 2001 in a deal worth $160bn, but that deal was unwound in 2009 as it was apparent that the companies were not a good fit, and AOL had been hugely overvalued along with other tech stocks in the early 2000s.