AOL Inc will buy Arianna Huffington's influential website for $315 million, looking to the high-profile liberal pundit to rescue it from the dustbin of Internet history. The move, announced Monday, comes at a hefty premium. AOL is estimated to be paying 32 times earnings before interest, taxes, depreciation and amortization for The Huffington Post, said Benchmark Co analyst Clayton Moran.
Similar content deals, such as Hellman & Friedman's acquisition of Internet Brands in September 2010, typically go for eight to 12 times earnings, said Moran. "AOL just spent 40 percent of their cash for very little near-term return," said Moran.
[Link]
AOL expects Huffington Post to generate around $10 million in profit before interest and taxes and see savings of around $20 million meaning it would be valued at around 10 times 2011 profits.
The Internet company's name is still a proxy for expensive mergers gone wrong following the unraveling of its $350 billion merger with Time Warner Inc in 2000. Once worth $163 billion, today AOL has a market capitalization of around $2.3 billion. Shares fell 3.4 percent to close at $21.19 on Monday.
AOL's management was eager to point out that there would be financial benefits from buying Huffington Post.
"One plus one will equal 11," AOL Chief Executive Tim Armstrong said in an interview with 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 Armstrong and Huffington and congratulated them.
Armstrong said that the deal represents an opportunity to shore up AOL's content area and that an acquisition, rather than a partnership, made more sense. "It boils down to our strategy of the Art of War," Armstrong said referencing the ancient Chinese book on military strategy revered by executives.
Huffington Post's co-founder Arianna Huffington, is often described as the doyenne of the liberal political commentary in the United States and is a regular fixture on the cable TV news circuit opining on political news of the day. She is easily recognizable for her distinct Greek accent and forthright left-of-center viewpoint.
"Tim's and my vision are so aligned it's a dramatic opportunity to accelerate what we do with Huffington Post," Huffington said in an interview with Reuters.
She will lead a newly formed The Huffington Post Media Group, which will integrate all Huffington Post and AOL content, as its president and editor-in-chief.
"I want to stay forever," Huffington told analysts on a conference call. "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.
