Although the deal prices the former dial-up king at ~$50 per share, a nice 23% premium to its 3 day VWAP, the size is a far cry from the dot-com peak $168b deal with Time Warner (TWX). Of course, the disastrous saga of that merger is well known (and studied by numerous business schools), but less covered is that AOL has done a nice job turning itself around since its late 2009 spinoff from Time Warner. It wasn’t clear in the beginning that was going to be the case as the stock was languishing a few years post-spin due to weak performance and an unclear business plan. Many thought it was doomed from the start, but give CEO Tim Armstrong credit for refocusing the business and moving it into ‘hotter’ areas such as video and advertising. It may have been a bumpy ride and not every decision he has made has worked out (sorry Patch and of course this absurdly awkward moment), but in the end he delivered strong value to investors in the spinoff through appreciation and capital returns.
AOL is currently trading slightly above the proposed deal price, implying that investors don’t seem all too worried about the deal closing. Maybe a higher bid is coming? Either way, this is looking like another happy ending for a highly publicized, but not well regarded spinoff.
Disclosure: Author is long shares of TWX.