Yahoo About To Overpay For AOL (TWX)?

please lord let this happen.

Ugh. Blech. Eww. Yuck. Barf.

Henry,

Why would they sell the dial up business during during the most severe deflationary spiral the world will have ever seen? Seems that cash flow is extremely valuable in such a period.

Per TC, it's just the advertising and content business, not the access business.

TWX price has fallen faster than the mkt since TechCrunch broke this story.

If this happens TWX end up having to pay to rid themselves of AOL.

And with a minority stake in the merged entity, TWX end up with custodianship of their investment in the hands of proven-as-hopeless Yahoo management.

Unbelievable though it sounds TWX can't do worse letting AOL row it alone than they'll do with this combination of the challenged. After all as Jeff said synergy is bs.

Yahoo needs to do something gain more revenue scale and shake things up. They are a flat company right now.

sell the dial up to malone - or to the Mexicans if they're dumb enough to buy it...

"We got it all nailed down to the typewriters."

Part of the problem with "aggressively integrating" by "eliminating redundancy" (read: "firing several thousand people in the process.") is that the aggressive integration would undoubtdedly mean cutting AOL people. In some cases, that might be best. But AOL has some top-rated content providers (TMZ, Mapquest, AOL Financial, etc.) that would also almost surely be cut. Mismanagement at Yahoo is a huge part of it's decline. What good would it serve to buy quality content then axe the orchestrators of the content in favor the entrenched Yaholes?

As household budgets get slashed to the bone, POTS-based dial-up will be the refuge for those that absolutely must have at-home connectivity.

And with asset values tanking, this will be sooner than later. TWX should not be so quick in abandoning this business, with oodles of overcapacity and network sunk costs.

Smells like a cash cow to me.

Henry-

What would one get if they bought the dial-up business? The equipment?

Where the hell is Icahn?
I cannot believe what is happening here. For those keeping score Yhoo is at $15.21 a share. Way to go Jerry,

what about the y! search businees? will they get rid of it?

So, what exactly is going to happen to AOL Radio, AIM, and AOL/AIM Mail if and when this deal finalizes???

Anyone know?

Before one more person applauds this deal and congratulates these parties on plans to cut thousands of jobs, can you stop for a minute and put this into perspective? You're talking about being happy that the livelihoods of thousands of Americans will be placed into jeopardy, in one of the most severe economic downturns in decades. Is this really a good thing? And odds are, unless you're independently wealthy, your job may not be on the most stable of ground as well.

These companies are making good amounts of money still- they may not be growing at the same sky-high rates as before, but there still is growth. Honestly, this deal is not needed. All it will do is send these companies on years-long integration fiasco that may or may not work in the first place, and again in the meantime, seriously disrupt the lives of thousands of employees and their families.
Is anyone else seeing something wrong with this scenario?

Sfsyder I totally agree with you. Being an Ex-Aoler and current Yahoo- I feel for some of the people who will be losing their jobs. It's pretty easy to get caught up in all the industry hype and excitement of M&A's- but it's important to take a step back and think about the human side of the equation. If this goes through a lot old friends will be out on the street.

makes sense that the yay-o-l deal = content + ad businesses..and that TWX will still offload dial-up to say ELNK...but i STILL think none of 'em know / understand / can fathom how many of those uniques they love to tout / page views (and ad impressions) are DRIVEN BY THOSE DIAL-UPPERS!!! i.e. once they separate 'em...all those "we're leading in several content categories" claims die - fast

All they would be buying is Platform A and it has hair all over it.

This recent article speaks clearly to the hidden liabilities Yahoo would be acquiring.


"Back in June, I wrote an article titled Why AOL’s “Platform A” May Not Make the Grade. The article discussed a series of changes being made by AOL to position itself as the world’s largest and most effective advertising network, building on its industry-leading Advertising.com network and the recent acquisitions of TACODA, Third Screen Media, Lightningcast, Adtech, Quigo and Bebo, collectively purchased for about $1.5 billion dollars (according to a recent interview with Lynda Clarizio, President of Platform A.) This realignment marked the final stage in AOL's transition from an access business to a global, ad-supported web company.

This new entity, Platform A, says it is offering advertisers access to the most sophisticated targeting and measurement tools available in the marketplace across Platform A's unmatched network of third-party sites, as well as AOL's owned and operated sites. According to comScore Media Metrix, Platform A is said to already reach more than 90% of the domestic online audience. Platform A builds on the success of Advertising.com, which operates the largest third-party display network, and integrates behavioral targeting leader TACODA, Third Screen Media, which operates the largest mobile media network, market leading video ad serving platform Lightningcast, and ADTECH's global ad serving platform.

Previously, I pointed out that I believed a possible material weakness existed in Platform A, one that had the potential to impact its entire structural integrity. That weakness is a lawsuit in which Modavox, (MDVX.OB) a small Phoenix Arizona based company, is suing Tacoda for patent infringement. I believe these patents were issued in 2002 (an interesting date as you will note below in relation to Be Free’s purchase by ValueClick (VCLK)) and 2007 respectively. Their issuance calls into question just who owns the behavioral targeting technology Platform A is both leveraging and dependent on for the monetization of its entire business plan.

Despite the suit having been filed prior to the actual closing of the Tacoda acquisition, AOL management apparently dismissed its relevance and proceeded to close the acquisition for a reported $275 million. Could this prove to have been a costly mistake for Time Warner (TWX) shareholders? If it’s proven that this little company does in fact own the patented technology that AOL thought they were buying with the purchase of Tacoda, then one must certainly wonder if this costly mistake could serve as cause for a potential shareholder action? Interestingly enough, in the legal section of Time Warner’s last filing, I saw little to no mention of this issue disclosed within.

Perhaps AOL’s management and Lynda Clarizio aren’t concerned about Modavox’s patent infringement suit? In my last articlem I posed the question “what happens if they lose this suit and can’t use Tacoda technology anymore?” Perhaps they view this as just one isolated suit by a little guy trying to cash in? Don’t be so sure. Enter ValueClick.

According to MediaPost, ValueClick has previously filed and settled lawsuits against Blue Lithium and Revenue Science for patent infringement on the general principles of behavioral targeting. Now, ValueClick has filed a similar infringement lawsuit against Tacoda. The patents at issue, one issued in 1998 and the other 1999, both deal with creating behavioral profiles of web users.

Ian Lee wrote a nice article containing some interesting commentary called “The End of Behavioral Targeting as we know it” Interestingly, he comments that in 2002, ValueClick acquired Be Free in a deal valued at $128 million. Many had long wondered why the high price tag was paid for Be Free hot on the heals of the Internet bust. Six years later, the real reason for the high price tag has become very clear. The real value in Be Free wasn’t its affiliate platform but the two behavioral targeting patents that it holds, the same two patents they are now leveraging against Tacoda.

One must assume ValueClick views these patents as far more valuable today than the $128 million they paid for them six years ago. It’s likely anyone seeking to acquire those same patents now could expect to pay a multiple of their original sales price. Perhaps AOL’s purchase of Tacoda for $275 million might be a good starting point, or the $300 million Yahoo (YHOO) paid for Blue Lithium. Wait, does either of those companies even own any patented technology for behavioral marketing or targeting? Based on ValueClick’s already settling with Blue Lithium and Revenue Science, and both Modavox and ValueClick going after Tacoda, it would appear not.

So ValueClick owns two patents and Modavox owns two patents (with a couple more rumored to be pending), all seemingly critical to the process of behavioral targeting and marketing. According to David Morgan, Founder of Tacoda, behavioral marketing could jump from $700 million last year to about $10 billion in 2013 making the stakes very high. Both companies are currently suing Tacoda, owned by AOL, for patent infringement through the alleged use of their respective patented technology. Are these patents enforceable, they certainly appear to be. Are they valuable, again they appear to be. But what is the difference between the ValueClicks and the Modavox patents? Ah yes, the million dollar question!

To the best of my understanding, ValueClicks patents acquired for $128 million in 2002 are again related to creating behavioral profiles of web users. It would appear they involve the process of gathering data which then may be used to better target the consumer via online advertising. Modavox’s patents on the other hand relate to the customization of content or what you do with the data once acquired.

In other words, when companies like Tacoda and perhaps even ValueClick procure the information, it appears that it’s Modavox’s patented technology which allows the actual advertisement to be tailored to the consumer based on that data. So perhaps ValueClick owns the front end of the behavioral marketing process while Modavox appears to own the back end. This begs the question “what is the all the behavioral data in the world worth if you can’t monetize it through custom tailoring of advertisements?”

It also begs the question if AOL acquired Modavox, would this potentially help them in their suit with ValueClick? Just a few of the question I’d love to ask Mr. Falco and Ms. Clarizio.

As we see a continued proliferation of advertisers shifting their ad spend online, advertisers will continue to seek and demand that their message has a reasonable chance of reaching their intended target audience. Gone are the days when advertisers will accept the old “Spray and Prey” methodology of online advertising. It is valuable patented behavioral technologies like those owned by both Modavox and ValueClick, which facilitate this all important process.

Again, until this important question of just who the rightful owner of this important technology is. I expect Platform A will continue to fail to make the grade."

AOL is Awesome!!!

Yahoo is Awesome!!

Platform-A is Awesome!!!

Right Media is Awesome!!

Alley Insider is a bunch of crap and so is TechCrunch

The AOL Yahoo merger is false information full of lies No way this is happenning.

Perry, you article holds no value.

AOL and Yahoo! are both making the grade considering how messed-up the financial indusrty is

At least these two companies are profitable and not screwing the economy and middle class.

Henry, I reckon you'd have put no more than a max value of $8B on AOL ex access back in the summer when Yahoo's share price stood at $25. Since then the market's badly down, Yahoo's down 40%, yet you don't bring your implied value for AOL down. Were it separately quoted it too would be down probably 40% from the summer.

I'd estimate more like $5B was a full price today, ex access, considering likely forward market conditions.

Can someone tell me that if this does happen what happens to companies that are in talks with AOL on a content deal? The reason I ask is we have been talking to AOL for about 6 months and just now we have heated up talks and hope to have an answer from AOL this month. Any help I would appreciate.

Attention: Webmaster

Please see that poster "Andy" receives my reply to his retort in the matter of "Henry and the Jobs 'heart attack story'", reprinted below:

Also, I suggest that you modify the format of the blog so that additional comments are more easily evidenced at the end of the first page of comments.

Thanks, joeblow
======

Andy,

I appreciate your opinion, but we'll just have to disagree.

I will say that if you want to start a movement for legislation to prevent unidentified posters from having unrestrained access to make unsubstantiated claims on financial message boards and blogs, I'll sign up.

I can't identify myself because of particular reasons, but I don't abuse the anonymity.

One problem we have in our society (go read the Yahoo message boards on almost any stock) is that we've allowed the system to develop to a point that anybody can say anything about any company or any person and have a reasonable chance of remaining in the shadows where they can hide and accomplish their damage, either from hate, revenge or fraud... or just for the fun of it.

I've also stated here many times that insiders should not be given the privilege (under freedom of the press) to leak information to the press, because the nature of simple contractual arrangements between corporations and the reporting (or leaking) of significant corporate events does NOT rise to the level of requiring freedom of the press guarantees against identifying the source of the information.

In other words, freedom of the press and its privilege to maintain anonymity should be reserved for matters that threaten life, liberty and the benefit of the public at large (pollution, graft, personal freedoms, etc.), not mere matters of XYZ's finances or XYZ's negotiations with ABC.

The founding fathers would've laughed off the notion that the financial press should be allowed to hide the identity of corporate leakers. The whole episode with MSFT and Yahoo was proof enough of my assertions.

Still, I respect your opinion.

regards, joeblow

There are two possible outcomes here.
The good one. Yahoo will learn and take advantage of the content creators at AOL that in general are great at managing the dual mandate 'great content, monetized content'. They should be able to reap some serious cash out of Yahoo's horrifying badly monetized properties.


There is another perhaps more likely, but very frightening scenario.
No doubt Yahoo will be under significant pressure to cut costs immediately after the merger. Bureaucratic Yahoo bosses hell bent on ensuring their own livelihood will slash jobs and decommission AOL 'Media on Maple' Drive (as I call it).
In favour of the worst performing online media network on the west coast 'Yahoo Media Group'.
I'm a firm believer AOL Bev. Hills is one of AOL's most valuable assets, and consistently outperforms Yahoo in every market.

Someone from AOL has to be appointed to remove the Geek connotations with Yahoo in Hollywood.
AOL is a damn dial-up company, but its TWX affiliation has made it a fierce contender in areas like Entertainment (TMZ, Sessions, Moviefone Unscripted').
ALL original video production at Yahoo should be completely frozen till the merger begins. Then ALL Yahoo employees that have had any influence on Video Production, Yahoo Music, Movies, or Entertainment, released from their posts effective immediately.
Yahoo Finance employees can stay, they are really the only solid performers on Yahoo properties.

On a side note, I'm completely shocked about this announcement (if it is true). I really thought the AOL Microsoft talks were about to close (with a deal) by Friday.

Hello...are you all insane. Yahoo's stock is at $15. they are not spending $8b or $4b for ANYTHING and taking that type of dilution. If they do, the stock will be $9 and Carl Icahn will personally strangle Jerry Yang. Wake up

Sfsyder really has a point. AOL is laying off people without any severance packages in order to make the numbers for the deal. This could be really bad for many employees.

@rocket 11: Agreed. Voice of sanity. Considering big (like really) picture, not sure how this stock-deal goes through, even if TW provides the financing that would otherwise be impossible to come by. About the worst time to be doing this for either company (or frankly MSFT).

Lead sentence here: "Yahoo and AOL could announce their merger deal this Week "
TC article: "Deal Could Happen This Month ", with no mention at all of the deal closing any sooner...
Is Henry/SAI just trying to accelerate the timetable here, or do they know something more on this?

@sfsyder, well said. In times like these, which may not have been seen since 1929, people need to think and respond as you have.

Meanwhile, people like "Gordon" choke on the gristle of a fat steak while trolling blogs and their thumb remains up their ass after holding a stock they didn't have the balls to drop when the real investors did. Chew away Gordon, chew away.

I said it months ago, and the negative creeps chimed in, but I will say it again. AOL is/has been doing neat things. SAI loves to twist things by "reporting" smart cut backs that any smart business would do. But they don't talk about positives. This country is full of that. It would be nice to hear some positives, in these times, even if it didn't equate to a stock climbing 35% in a quarter. Get real. Pay attention, and realize that any "baby step" by a company these days is still a "step".

AOL has been doing well in their rebuild, going from dialup only to free content and the masses on the internet have taken notice. Now, after 12 months of beginning Platform-A, they just need to monetize it. It is a few baby steps away from walking, to running. Bring back the running man? Just maybe.

Cheers

Heck, if they pay AOL nothing and take on their debt they've overpaid.

Jon Miller would have gotten AOL $100B

Hey Henry, how about some coverage on the SEC bending over backwards for John Mack? Any surprises here?

http://abcnews.go.com/Blotter/story?id=5970263&page=1

@BurnedAgaib Where are you getting your info from on the firing with no severance? I can tell you firsthand, as a recent layoff-ee, that while the severance is not anything near what it once was, it does meet the minimum required under the WARN act.

Dial up a cash cow? In the words of Sarah Palin "ya, you betcha!" I think TWX would be smart to just milk that baby for as long as they can.

This will not get through the regulatory hurdles in a million years. If you think it will be tough to get it cleared in the US, Europe is 10x more difficult.

I do feel bad for AOL employees who are now being laid off with out severance. Most of them are hard owrkign and are trying their best- and have always realized that Smithers and Burns where driving the company into the ground. Regardless of the economy- instead of contiuning to drink the kool-aid they should all be polishing up their resumes and looking for other jobs bc its a matter of when not if they will be booted. The lucky ones got laid off a year ago with good severance packages, and have moved on and are happy in new roles. Many of us put years into that place but now realize there is life after AOL...

Jack...anytime someone writes Cheers at the end of an email...they clearly have some connection to the National SVP of AOL Mike Peralta...he signs all his emails Cheers...even as he lays people off. It is so easy to see the suckups at AOL who are now doing the same. British my _ _ _!

And as for monetizing Platform A...Good Luck. Rumor has it they are reorging accounts as we speak (this has been ongoing for 5 months) and another Platform A reorg is on the way. Good Luck folks.....Look for jobs now before you are all on the market together!!!

Jack wrote: "Now, after 12 months of beginning Platform-A, they just need to monetize it."

That's great but monetizing it depends on the use of technology they are being sued for stealing from other companies. Without Tacoda's technology which David Morgan sold to them as his own, Platform A has a huge problem.

Both Modavox and Valueclick are suing as we speak for patent infringement. Without the use of this core behavioral targeting technology, Platform A can't monetize it's collective $1.5 billion in acquisitions. How Falco could be so stupid to have acquired Tacoda and paid $275 million for a company that didn't even legally own or patent the technology their entire business was built upon! Another great blunder by the incompetent leaders which have steered our stock to new lows!

"they just need to monetize it."

how cute.

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Just having Lynda Clarizio and Eric Bosco alone is worth the deal....they are bound to turn Yahoo around if they are kept on as part of their management team.

No, Sue Decker will turn around AOL.

"They just need to monetize Platform A"

Platform A is riddled with liabilites. Why would anyone acquire a company who may have a huge material impairment to their valuation based on potentially highly costly lawsuits involving technology that is the core of monetizing online ad dollars? They lose Tacoda's behavioral targeting technology and they are nothing but a 3 legged chair that will inevitably topple under its own weight. Tacoda doesn't own a single behavioral marketing patent. Their whole business was predicated on someone else's technology!

Prior poster wrote:

"That's great but monetizing it depends on the use of technology they are being sued for stealing from other companies. Without Tacoda's technology which David Morgan sold to them as his own, Platform A has a huge problem.

Both Modavox and Valueclick are suing as we speak for patent infringement. Without the use of this core behavioral targeting technology, Platform A can't monetize it's collective $1.5 billion in acquisitions. How Falco could be so stupid to have acquired Tacoda and paid $275 million for a company that didn't even legally own or patent the technology their entire business was built upon! Another great blunder by the incompetent leaders which have steered our stock to new lows!"

BINGO!!!!!

Uh, hello. All you people who think AOL's somehow better than Yahoo, please remember this....

AOL copied, not just plagarized, but literally COPIED the Yahoo homepage. All of you AOL'ers should be embarrassed.

Last time I checked, strong, innovative companies don't go around copying their supposed second class competitors.

Give it up, AOL's dying. Yahoo is too. The only way to give them a fighting chance is to merge and look for efficiencies to help make the combined entity profitable.

@Crazy People

That plagarization of the Yahoo homepage was due to the mandate of one Ron Grant. Everybody else at AOL was furious about that decision.

When Yahoo buys AOL, step 1 will be to show Grant and the clueless Falco the door.

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