NEW YORK Time Warner Inc.'s AOL Internet division is to buy social network Bebo for $850-million in cash, bolstering its consumer Internet offerings even as the media conglomerate mulls splitting off the business.
Bebo, which claims a global membership of about 40 million users, is one of the top social networks in Britain and market leader in Ireland and New Zealand, it said. It is No. 3 in the United States behind News Corp's MySpace and Facebook.
“AOL, at its core, is a way for people to connect,” AOL President Ron Grant told Reuters in a phone interview on Thursday. “We need to get back to our roots.”
The two companies had spent the last six months hashing out the deal, the executives said. Grant said Bebo's heavy focus on media and international interest had made it particularly attractive.
It already has a service in Poland and is set to launch in France, Germany, Italy, Spain and the Netherlands in the next five or six months.
The purchase comes amid a wholesale transformation of AOL from a dial-up Internet provider to an online advertising powerhouse.
It has spent nearly $1-billion to create one of the biggest third-party display ad units, Platform-A. AOL aims to gird against the prospect of bigger rivals as Microsoft Corp. pursues a deal to buy Yahoo Inc. and following Google Inc.'s purchase of DoubleClick.
“This is a tremendous acquisition and one I think is game-changing for AOL,” AOL Chairman and CEO Randy Falco said on a conference call.
“Bebo will be the cornerstone of our strategy to transform online experiences for advertisers, media companies and consumers,” Falco said.
AOL said Bebo would help round out its personal communications offerings, now comprised of AOL Instant Messenger and ICQ, two wildly popular services that let users send quick text, video and audio correspondence.
Despite its global popularity AOL has not had much success turning that into a business.
AOL said its advertising system is well positioned to turn social networks into a thriving business despite difficulties its rivals face. Google, which is the search advertising provider for MySpace, expressed difficulties in “monetizing” MySpace's traffic.
“The acquisition demonstrates again how important the social networking sites are to major media and Internet brands, who are looking for new means to advertising growth,” said Paolo Pescatore, an analyst with UK-based CCS Insight.
“They represent a powerful opportunity, with their access to demographic data and ability to target specific audiences.”
Bebo President Joanna Shields will continue to run Bebo and will report to Grant after the transaction closes. Falco said he expected the deal to close in “the normal time” – within around 30 days.
Falco declined to comment on what multiple of sales or earnings AOL may have paid but defended the price, comparing it with the $15 billion valuation of Facebook implied by the $240-million Microsoft paid for its 1.6 per cent stake.
Facebook has around 67 million unique users.
“We think it's an excellent asset at a great price and we, I think, have a proven track record of spotting value,” he said.”
Banc of America Securities LLC and Deutsche Bank Securities Inc.. advised AOL. Allen & Co advised Bebo.