February 5, 2009
Google Forcing TW to Put AOL in Play
Google appears to be moving to shake things up in the search engine environment by issuing an ultimatum to Time Warner over AOL. "Put AOL in play or we walk away." In an investors' teleconference yesterday, Time Warner CEO Jeff Bewkes said Google has pulled a shot-gun clause of sorts on Time Warner. Google owns 5% of AOL. It bought those shares in December 2005 for $1Billion which, at the time, gave AOL a valuation of $20Billion. The deal was good for three years before Google had a right to sell or otherwise dispose of its shares. Instead of selling those shares however, Google decided to take a 75% write-down loss against the AOL investment on its Q4-08 financial statement effectively revaluing AOL at $5.4Billion. Time Warner can buy Google out or it can spin AOL off into its own company. Time Warner reported a loss from AOL earlier this week. Time Warner has never really known what to do with AOL anyway. Google, which is known for its Machiavellian style of negotiations, has developed a habit of using its enormous financial and technical resources to maneuver other companies into whatever position works best for Google. In 2005, Google allowed Microsoft and Yahoo! to spend the autumn fighting each other over AOL before swooping in and making a last minute behind the back deal to acquire that 5%. More recently, Google appeared to offer Yahoo! a last-ditch lifeline in its bid to stave off take-over by Microsoft. The deal fell through when the Congress threatened to open anti-trust hearings but for over six months, Google convinced former Yahoo! CEO Jerry Yang that he had a safe path away from Microsoft. By just making the offer, Google put itself in a win-win situation and placed Yahoo! in a position where the lesser of two evils was still an awful option. Watching Google basically force Time Warner's hand over AOL is interesting. Clearly they want the property put into play. Why they want AOL in play is another question. Any ideas?