Skip to main content

A man speaks on his cellphone as he walks past a Verizon store in Portland, Ore., in this file photo.Don Ryan/The Associated Press

Verizon Communications Inc. has approached AOL Inc. about a potential acquisition or joint venture with the Internet company to expand its mobile-video offerings, people with knowledge of the matter said.

Verizon hasn't made a formal proposal to AOL, and no agreement is imminent, said the people, who asked not to be named because the discussions are private.

Verizon's primarily interested in AOL's programmatic advertising technology – the automated buying and selling of ads online – which two people said could be paired with a future online-video product. With a takeover it would also gain Internet properties including The Huffington Post and subscribers who pay for Internet access.

AOL ended trading yesterday with a market value of about $3.5-billion and rose as much as 13 per cent after the close of regular trading in New York. In German trading today, the stock climbed 11 per cent to the equivalent of $49.52 as of 9:22 a.m. in Frankfurt. Verizon's market value is about $193-billion.

Spokesmen for Verizon and AOL declined to comment.

Just a few years after AOL's failed marriage with Time Warner Inc. ended in its spinoff, Chief Executive Officer Tim Armstrong has transformed the Web portal into a different company. A venture would allow Verizon to focus on the advertising technology as the company seeks expertise in three areas: online content, mobile video and advertising, one person said. The company also has held talks with several of AOL's peers about how to bolster those businesses.

Chasing AT&T

Researcher EMarketer Inc. projected in July that mobile advertising would lead 2014's rise in total media ad spending in the U.S., with advertisers spending 83 per cent more on tablets and smartphones than they did in 2013 – an increase of $8.04-billion.

Verizon is looking to catch up with AT&T Inc. as wireless providers enhance their offerings. AT&T last year struck a $48.5-billion deal to acquire satellite TV provider DirecTV.

In a takeover, Verizon would also gain AOL's 2.3 million paying members, in addition to Internet brands including the Huffington Post, TechCrunch and Engadget. It's unclear if Verizon is interested in those media properties, which draw more than 200 million unique visitors a month, the fourth-most in the U.S., behind Google Inc., Yahoo Inc. and Facebook Inc., according to November data from researcher ComScore Inc.

Early Portal

Once known for its "You've got mail" notification to consumers, AOL was one of the main portals through which people first accessed the Internet. Its trajectory peaked with a now– infamous $124-billion combination with Time Warner 15 years ago, after which it began losing customers to faster services from telephone and cable-television carriers.

After years of losses the merger was unwound with a spinoff in late 2009.

Some of AOL's members still use its dial-up Internet service, though the company is winding down that business. If Verizon acquired the New York-based company, it could continue that process and convert some of those customers to its FiOS broadband service, one of the people said.

Verizon is dedicating three executives to help develop a mobile-video service and integrate acquired technology, known as OnCue, from Intel Inc. last year and EdgeCast Networks Inc. in December 2013. AT&T and The Chernin Group announced a joint venture to acquire and develop online-video services in April 2014.

AOL Transformed

Verizon is still paying off debt from buying Vodafone's 45 per cent stake in Verizon Wireless last year for $130-billion, and the company is stockpiling cash to acquire wireless spectrum in an auction that began in November. Both could hamper the New York company's ability to make an acquisition, two people said.

AOL CEO Armstrong has made a series of investments in ad technology that has brought growth, with the promise of profits not far off. Armstrong has revamped AOL through acquisitions, and most of his biggest bets have been on advertising. His largest transaction was 2013's $418-million purchase of Inc., which matches advertisers and video publishers through an exchange.

The strategy is to make AOL a company advertisers use to automate their purchases of placements on websites and online videos across the Web. While ads are everywhere online, marketers have found it difficult to ensure their messages are getting in front of their ideal audiences, a dilemma AOL's technology is meant to address.

Activist shareholder Starboard Value LP proposed last year that Yahoo explore a combination with AOL.

Interact with The Globe