AOL Huddles With Top M&A Team | Adweek
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AOL Huddles With Top M&A Team

But CEO Armstrong denies any deal in the works
AOL CEO Tim Armstrong

AOL CEO Tim Armstrong | Bryan Bedder/Getty Images

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AOL has retained two of the biggest names in mergers and acquisitions, law firm Wachtell, Lipton, Rosen & Katz and investment banking company Allen & Company LLC. A team from those firms, including Wachtell, Lipton founding partner Martin Lipton and Allen & Co. managing director Nancy Peretsman, met with AOL executives at the company's Manhattan offices Wednesday, Adweek has learned.

Lipton, 80, is perhaps the leading M&A attorney in the U.S. Legal observers believe that his personal involvement and presence at the AOL office could indicate that a high-level transaction is being discussed, but AOL CEO Tim Armstrong told Adweek by email, "There is no deal on the table, no proposed deal, and both parties are on retainer with us and we work with them. Our strategy hasn't changed and we are moving faster than ever on it." The company declined to say if there are ongoing discussions about a merger or acquisition.

Lipton, a founding partner of Wachtell, Lipton, is best known for having pioneered the "poison pill" defense against hostile takeovers, and he's defended against some of the biggest takeover bids of the past few decades, most recently Comcast's 2004 move against Disney. Peretsman is one of the most aggressive players in the media M&A field; among other things, she worked on Google's 2005 deal to buy 5 percent of AOL, as well as Rupert Murdoch's successful bid to take over Dow Jones & Co. and The Wall Street Journal.

While AOL has been focused on a turnaround plan centered on its acquisition of the Huffington Post, which it announced in February, its share price has fallen by 40 percent since then, indicating a lack of investor confidence in its strategy to become a premier advertising play.

In late July, the company dismissed its advertising chief, Jeff Levick, and announced that it was bumping up Advertising.com President Ned Brody to a new role as chief revenue officer.

Various analysts have suggested that the breakup value of the company, which now includes AOL's media properties, dial-up business, advertising business, and applications like AIM and Mapquest, could be significantly greater than its current market value of about $1.5 billion.

AOL could be a particularly ripe target for private equity firms that have been looking to get into the digital space but have been hamstrung by the difficulties of arranging traditional PE financing for companies with meager cash-flow prospects. Thanks to its legacy dial-up business, AOL remains a strong, albeit declining, cash engine.

While AOL has continued to be linked with Yahoo as a possible merger or acquisition partner, observers believe that as both companies have encountered a more difficult business environment that combination has become less likely and, too, that a “media” play—a strategic matchup with another content company—is not in the cards.

“Any rumors to the fact that a major media company would be interested in AOL at this point are purely being floated by bankers to raise the price,” said a digital media executive close to people at the company.

“Inside of AOL, I would guess . . . all options are on the table,” the executive said. Selling off the company to someone willing to pay more than the current stock price is a definite possibility, but so is figuring out which nonessential pieces could be spun off to generate cash.

One part of AOL that could be interesting to potential buyers, especially those from private equity, is Advertising.com, its online ad network. Robert Peck, of Quasar Capital Advisors, has said that a conservative estimate of Advertising.com's worth in a sale would be $200 million.

AOL's Internet access business would be the most valuable piece of the company if it were to be broken up. Sameet Sinha, an analyst with B. Riley and Co., believes a private equity firm could pick that up for about $1.5 billion; he values the future cash flow of the access business at $2 billion.

Additional reporting by D.M. Levine.