The AOLington Post: AOL Buys HuffPo for $315 Million [Updated]

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Photo: Michael Kovac/Getty Images

Last night's news that floundering tech/media company AOL would acquire the pageview ninjas at the Huffington Post was enough to startle us out of our beer and buffalo-wing Super Bowl coma. AOL will pay $300 million in cash and the rest in stock, the latest move in CEO Tim Armstrong's growth-by-acquisition rampage. When the deal is implemented in the next few months, Arianna Huffington will take control of all of AOL’s editorial content as president and editor-in-chief of the newly created Huffington Post Media Group. She will have oversight of all of AOL’s editorial operations, including MapQuest, Moviefone, PopEater, and recent acquisition TechCrunch. AOL’s own news websites, like Politics Daily and Daily Finance, which have added about 900 journalists in the past year, are likely to fold. Huffington Post CEO Eric Hippeau is leaving the company.

It was professional love at first sight when Huffington and Armstrong first met at a media conference in November. "We were practically finishing each other’s sentences,” Huffington said. "It was really amazing how aligned our visions were.” Armstrong reportedly made the official offer to Huffington over the phone in January, while she was at the World Economic Forum in Switzerland and he was snowed in in New York.

The reactions are starting to roll in. And they're not good.

The shock is not that AOL, which eliminated close to 2,500 positions last January, would be interested in traffic from one of the web's best aggregators. It's also not surprising that Huffington Post would be looking for a buyer. GigaOm's Om Malick suspected an offer from MSNBC before the end of the year. The shocker was that it was AOL, and at such a high price. Last week Forbes's Dan Mitchell wrote:

Ken Auletta's profile in The New Yorker of AOL CEO Tim Armstrong last month was a grim assessment the company's prospects and a scathing indictment of the quality of AOL's content — much of which, Auletta wrote, is "piffle." The company, he seemed to conclude, is more likely than not to "crash." AOL's earnings report released Wednesday morning didn't do much to belie that conclusion.

The deal is also reminiscent of another Sunday night surprise from eleven years ago, when AOL announced it was buying Time Warner. In retrospect, said entrepreneur Seth Goldstein, that deal "announced that new media was going to be bigger than old media. It also marked the final inflation of a bubble that popped painfully only a few months down the road." Indeed, AOL, a growth company back in 2000, took nine years to untangle itself from that unfortunate merger.

But the bubble déjà vu explains why Arianna is laughing all the way to the bank. Last December, Bloomberg valued her site at $300 million to $415 million, but that's no guarantee that it will be worth that much next year. Says Malick:

They are selling at the top of the market! The Huffington Post (and TV political commentators such as MSNBC’s Keith Olbermann) tasted success during a special kind of political climate, just as their rivals Fox and its commentators. The political (and economic) mood in the country is vastly different and who know if the Huffington Post could keep up the momentum.

Daring Fireball's John Gruber wins the best one-liner: "They deserve each other." Former AOL CEO Steve Case, who brokered the Time Warner deal, took aim at Armstrong and Huffington's cutesy quip that "1 + 1 = 11." Tweeted Case, "Really? That wasn't my experience."

As Malick also points out, in between AOL's purchases of TechCrunch and the Huffington Post, content farm Demand Media went public and is now valued at about $1.6 billion. That's just $600 million less than AOL's $2.4 billion valuation. In fact, "The AOL Way," a PowerPoint presentation from Armstrong leaked to Business Insider, shows that he might have more in common with Demand Media than the Huffington Post. His grand turnaround plan for AOL? "By April, he wants AOL editorial to increase its stories per month from 33,000 to 55,000. He wants pageviews per story to jump from 1,500 to 7,000. He wants video stories to go from being 4% of all stories produced to 70%. He wants the percentage of stories optimized for search engines to reach 95%." A sample headline might look something like: "Sexist Lindsay Lohan Cocaine Video EVER!"

According to All Things D's Kara Swisher: "The acquisition will become the linchpin of Armstrong’s aggressive strategy to focus the long-troubled company as a content and advertising powerhouse." Basically, "the deal gives them a site that is very good at generating lots of pageviews and impressions very efficiently."

In an e-mail this morning obtained by Intel, Arianna wrote that the merger "will be like stepping off a fast-moving train and onto a supersonic jet." Right, of course! A supersonic jet that transports you back to a decade when AOL seemed like a promising company! Actually, the real value of the deal, as Reuters' Felix Salmon points out, is the creation of Huffington Post Media Group, which may have more long-term potential than the rest of the business put together.

Given that AOL CEO Tim Armstrong has repeatedly talked about how he wants to be a content company, one has to wonder what that means for the rest of AOL — a group of businesses which still throw off the vast majority of the company’s revenues but are strategically non-core. The question now has to be asked: is AOL really the right parent for the unique and very valuable HPMG? My guess is that as AOL continues to divest itself of non-core assets, HPMG will make it increasingly attractive as a takeover target itself. HuffPo was definitively sold off today. But it might wind up getting sold again in the none too distant future.

This post has been updated with additional information.

AOL Agrees To Acquire The Huffington Post [HuffPo]
Betting on News, AOL Is Buying The Huffington Post [NYT]
AOL Buys Huffington Post for $315 Million in Cash, Appoints Huffington Editor-in-Chief [All Things D]
AOL+HuffPo! Why It is Not Really a Good Deal [GigaOm]
HuffPo’s future [Felix Salmon/Reuters]