Online company AOL Inc. is buying online news hub Huffington Post in a $315 million deal that represents a bold bet on the future of online news.
The deal announced early Monday puts a high-profile exclamation point on a series of acquisitions and strategic moves engineered by AOL CEO Tim Armstrong in an effort to reshape a struggling Internet icon. AOL was once the king of dial-up online access known for its ubiquitous CD-ROMs and "You've got mail" greeting in its inboxes.
Perhaps just as important as picking up a news site that ranks as one of the top 10 current events and global news destinations, AOL will be adding Huffington Post co-founder and media star Arianna Huffington to its management team as part of the deal.
After the acquisition closes later this year, Huffington will be put in charge of AOL's growing array of content, which includes popular technology sites Endgadget and TechCrunch, local news sites Patch.com and online mapping service Mapquest.
The price that AOL is paying is "really just the hiring fee to get Arianna," said technology analyst Rob Enderle. "This is one of those out-of-left-field moves that actually makes a lot of sense. This could put AOL back on the map."
Armstrong, a former Google Inc. executive, has been trying to turn AOL into a go-to place for a wide variety of news since he was hired to turn around the company in April 2009 while it was still a part of Time Warner Inc. The makeover is designed to give Web surfers a reason to visit AOL's websites more frequently to help boost online ad sales.
At the same time, Armstrong has laid off hundreds of employees in an effort to boost AOL's financial performance and stock price. It has been a slog so far. AOL lost $782.5 million last year, largely because of accounting charges, and the company's stock is now worth slightly less than after it was spun out of Time Warner 14 months ago.
AOL eliminated an estimated 2,500 jobs last year, The New York Times reported, while Huffington Post has increased its staff threefold in recent years to its current group of more than 200.
As part of the deal AOL news sites such as Politics Daily and Daily Finance could shut down, their writers transitioning over to Huffington Post, The Times report said, citing sources with knowledge of the deal who asked not to be identified because the final plan is still in the works.
The deal "will create a next-generation American media company with global reach that combines content, community, and social experiences for consumers," Armstrong said in a statement announcing the deal.
Founded in 2005, Huffington Post is owned by Arianna Huffington, Kenneth Lerer and a group of other investors. The site attracts 25 million monthly visitors. AOL will pay $300 million of the purchase price in cash.
On a conference call with analysts, AOL Chief Financial Officer Arthur Minson said the company expects Huffington Post will generate $50 million in revenue this year, with a profit margin of 30 percent.
Minson said the deal will save AOL $20 million a year by allowing it to eliminate operations that overlap with Huffington Post.
Putting Arianna Huffington into a position of power could eventually threaten Armstrong's job security if AOL still struggles, Enderle said.
"This is a gutsy move (Armstrong's) part because Arianna could end up running AOL," Enderle said.
'To the next level'
In a blog post about the deal, Arianna Huffington praised Armstrong's vision for AOL and said they were on the same page as they discussed their ambitions for online news. "We were practically finishing each other's sentences," Huffington wrote about their discussions. She wrote that the deal was signed at the Super Bowl in Dallas, which she and Armstrong attended.
"The Huffington Post has already been growing at a prodigious rate. But my New Year's resolution for 2011 was to take HuffPost to the next level — not just incrementally, but exponentially," Huffington said on her blog.
She said the Huffington Post decided early this year to expand into more local news coverage, launch international sections (starting with HuffPost Brazil) and increase original video content.
Purchase by AOL, with its network of blogs such as AutoBlog, Music, AOL Latino, Black Voices, its local news operation Patch.com and new video-production studios, will allow these goals to be met, she said.
"Far from changing our editorial approach, our culture, or our mission, this moment will be for HuffPost like stepping off a fast-moving train and onto a supersonic jet," she said.
If it wins expected regulatory approval without any hitches, the deal will likely close in late March or early April.
Armstrong has been an aggressive deal maker since his arrival, but this marks by far the biggest acquisition of his tenure. Various published reports quoting unidentified people have also said he has talked to private equity firms about the possibility of trying to buy Yahoo Inc., another struggling Internet pioneer that remains a household name. Yahoo CEO Carol Bartz, though, has shown little interest in working with AOL.
AOL had just a 5.3 percent share of the U.S. display advertising revenue in 2010, down from 6.8 percent in 2009, according to eMarketer. Facebook, meanwhile, accounted for 13.6 percent of display revenue last year, up from 7.3 percent in 2009.
Huffington Post grew quickly from startup to online colossus and ranks as one of the top 10 current events and global news sites. Over time, it launched city-specific pages and developed a roster of sections such as food and books. The work of its paid staff is augmented by content from news outlets and 6,000 bloggers who write for free.