As the world of technology gets pre-occupied with the happenings of CES 2015, the next big shift in corporate circles of the sector seems to be the coming together of Verizon (VZ, Financial) and America Online (AOL, Financial). As revealed by Bloomberg last year, the two companies were in talks for a joint venture deal, or perhaps a Verizon takeover of AOL, which supposedly reached an advanced stage of negotiations. However, recent reports reveal that Verizon is interested more in partnership (read joint venture), than an outright takeover. "I think AOL along with lots of other media companies are potential for us to do partnering, on a commercial basis or whatever," is what Verizon CEO Lowell McAdam was quoted as saying earlier in the week. He also went on to add that news of them having acquisition discussions isn’t "really accurate."
McAdams has been known to be not totally keen on acquisitions, instead look at partnerships with companies like AOL, who have varied media assets and corresponding competencies. In fact he had clearly mentioned, “AOL, along with lots of other media companies, is potential for us to do partnerships... “
Why the interest?
AOL has a gamut of offerings, including the programmatic advertising technology; purchase and sale of advertising media online. A joint venture with Verizon, a known telecommunications and broadband service provider, would mean that the ever expanding mobile advertising industry can be more methodically tapped into, and exposure to a new audience which Verizon is strongly on the lookout for. According to sources like Needham & Co. analyst Laura Martin, AOL has the perfect set of competencies to catch the eye of Verizon, which needs a digital response going forward, which includes the world of video-digital advertising.
To put numbers to statements, research marketing outfit EMarketer Inc. revealed, that mobile advertising would lead the media spends in the United States, with 83% increment on tablets and mobiles. On money terms, that’s an $8.04 billion increment from 2013. That’s why AOL automated online video advertising business is something, which augers well for Verizon.
Competition is indeed hot and aggressive
2014 was full of action as far as Verizon’s competitor AT&T (T, Financial) is concerned. They acquired DirecTV (DTV, Financial) in a $48.5 billion deal. Though in the satellite TV space, this deal opened up AT&T to a whole new set of consumers and made it improve upon offerings in the wireless internet service space.
Also in April 2014, the Chernin Group and AT&T had joined hands to build up on online-video services, something which is in the specific area Verizon and AOL ply in. This means, that Verizon needs to keep pace maintaining its position in the industry, and also not allow domination of AT&T in the space that they are operating in.
The stock markets are interested too
When something involves the likes of Verizon and AOL, the market has to rally a bit in their favor, as it is clear, everybody is interested. Bloomberg reports, AOL had a price increase of 3.4%, taking it to $46.25 a piece on the NYSE, taking the market value of the company to $3.6 billion.
On the other hand, Verizon gained less in terms of percentage, with a 1% increment, taking its stock to $47.04 a piece, and overall market value to $195 billion. The point to be noted here is that both companies are yet not commenting on the numbers, and want things to be more concrete before letting out more.
Final Thoughts
Verizon chief Lowell Mc’Adam certainly has its priorities right, where he is actually looking at partnerships instead of buyout. After spending $130 billion on buying Vodafone’s (VOD, Financial) 45% stake in Verizon wireless, the parent company is short of cash, obviously. At the same time, competitor AT&T is being aggressive to acquire assets in the same industry and build capabilities in the space. An outright acquisition might be lucrative for a few, but a JV or a partnership would ensure that Verizon gets to capitalize on AOL assets like Adap.tv, and brands like TechCrunch and Engadget, both of which draw a combined unique audience of 200 million a year, making them the 4th highest in the United States, putting them behind Google (GOOG, Financial), Yahoo! (YHOO, Financial) and Facebook (FB, Financial). Also after the acquisition of OnCue from Intel and EdgeCast Networks in 2013, such a combination of partnerships would drive the company ahead with much more force, getting them value for their money.
