updated 3/13/2008 8:54:04 AM ET 2008-03-13T12:54:04

AOL, the Internet arm of Time Warner Inc., said Thursday it will pay $850 million in cash to acquire social media network Bebo, which has total global membership of more than 40 million.

Bebo is one of the largest social networks in Britain, and is ranked number one in Ireland and New Zealand and number three in the U.S., according to AOL. Bebo has about 100 employees operating in offices in the U.K., San Francisco and Austin, Texas.

As social networks such as Bebo have grown in popularity, so has their value to media companies as potential goldmines for online advertising dollars. News Corp., which also owns the Fox television and movie studios in addition to its newspaper and Internet holdings, bought MySpace for $580 million in 2005, but has estimated the network is now worth more than $15 billion.

Facebook Inc., which owns the Internet’s second-largest social network behind MySpace, now arguably has a $15 billion market value, based on Microsoft’s purchase late last year of a 1.6 percent stake for $240 million.

“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media,” said Randy Falco, chairman and chief executive of AOL.

AOL said current Bebo president Joanna Shields will continue to run the company, reporting to AOL President and Chief Operating Officer Ron Grant.

The acquisition is part of AOL’s shift from a subscription-driven business to becoming a public Web site that generates income from building traffic and selling advertising, similar to rivals Yahoo Inc. and Microsoft Corp.’s MSN. AOL, which has launched 17 international Web sites over the last year and has plans to expand to 30 countries outside the U.S. by the end of 2008, said Bebo plans to launch in five countries this year, and will be “featured prominently” in AOL’s international expansion efforts after the deal is closed.

AOL was advised by Banc of America Securities LLC and Deutsche Bank Securities Inc. Bebo was advised by Allen & Co.

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