AOL buys Huffington Web site for $315M
2/8/2011NEW YORK -- AOL Inc. will buy Arianna Huffington's influential Web site for $315 million, looking to the high-profile liberal pundit to rescue it from the dustbin of Internet history.
The move, announced yesterday, comes at a hefty premium. AOL is estimated to be paying 32 times earnings before interest, taxes, depreciation, and amortization for the Huffington Post, Benchmark Co. analyst Clayton Moran said.
Similar content deals, such as Hellman & Friedman's acquisition of Internet Brands in September, typically go for eight to 12 times earnings, said Mr. Moran.
"AOL just spent 40 percent of their cash for very little near-term return," he said.
AOL expects Huffington Post to generate about $10 million in profit before interest and taxes and to have savings of about $20 million, meaning it would be valued at about 10 times 2011 profits.
Since the unraveling of its $350 billion merger with Time Warner Inc. in 2000, the Internet firm's name is still a proxy for expensive mergers gone wrong. Once worth $163 billion, AOL has a market capitalization of around $2.3 billion.
AOL's management was eager to point out that buying Huffington Post will bring financial benefits.
"One plus one will equal 11," AOL Chief Executive Officer Tim Armstrong told the New York Times.
Steve Case, the AOL executive who led the ill-fated Time Warner merger, said on his Twitter account: "Really? That wasn't my experience." He later sent another tweet saying he was teasing Mr. Armstrong.
Speaking to analysts on a conference call, Ms. Huffington said, "I want to stay forever, I want this to be my last act."
The deal also sees the return to AOL of Huffington Post's other co-founder, lead investor, and chairman Ken Lerer. He had been an executive vice president of AOL Time Warner.
Huffington Post had been shopped around to other media companies as its backers had sought an exit.
Former NBC Universal CEO Jeff Zucker said at Harvard University yesterday that his company had considered buying the site. "We tried for the last 18 months at NBC to buy the Huffington Post; we could never agree on price is why it never got done," Mr. Zucker said.
The acquisition of Huffington Post is the latest move by Armstrong to rescue AOL's dial-up Internet access business by turning it into a media and entertainment destination. AOL suffered sharp declines in advertising sales and dial-up subscriptions in the fourth quarter of 2010, driving overall revenue down 26 percent. .
About $300 million will be paid in cash in the purchase, which has been approved by the boards of directors of both companies and shareholders of The Huffington Post, though it is subject to government approvals, AOL said.
The Huffington Post is expected to generate more than $50 million in revenue for 2011 and at a $100 million run-rate for the next 12 months, with margins at about 30 percent, according to prepared remarks by AOL Chief Financial Officer Arthur Minson.
AOL is expected to incur abut $30 million in cash restructuring charges from the deal, which is expected to be closed in the late first, or early second, quarter of 2011.
AOL executives said they forecast operating profit growth by 2013, in part because of the acquisition.
The Huffington Post, started in 2005, has grown into one of the most heavily visited news Web sites in the United States.
"My New Year's resolution for 2011 was to take HuffPost to the next level -- not just incrementally, but exponentially," Ms. Huffington said in her blog.