Mark Lacter • August 31 2011 3:24 PM
Not much doubt that the idea is at least being considered – company executives have been meeting in recent days with M&A specialists, the NY Post reports. The more relevant questions:
–Would anyone be interested in the entire package? –If not, which units might be unloaded? (Patch seems like a dead duck, as do the other weak revenue generators.) –Would it make sense to take the company private?
As Felix Salmon sees it, the company relies too heavily on its creaky dial-up service to bankroll all the content, including the Huffington Post. Sooner or later, that’ll catch up with you. With the stock price having fallen sharply, it’s probably sooner. From Salmon:
There’s no precedent for the idea that throwing hundreds of millions of dollars at a web content company will make it big and strong and self-sufficient. Expensive web content is expensive, especially when you’re trying to build out a network of thousands of locally-staffed sites. Meanwhile, profitable websites tend to be run on the cheap — including HuffPo, before it was bought by AOL. If I wanted to make a long-term for-profit investment in a website built on the genius of Jonah Peretti, I’d choose BuzzFeed over HuffPo any day. So the ruthless logic of the market would seem to imply that the best thing to do with the dial-up business and the content business is to tear them apart. The dial-up business, on its own, is ripe for a managed decline, where you extract as much money as possible before it finally dies. Private equity companies do that kind of thing very well. Meanwhile, the content business is still attractive, to someone — probably Yahoo, is my guess.
It’s worth noting that reports of AOL being taken over are not new – and the company continues to claim that no deal is currently being considered. That’s probably true – the M&A talks appear to be in their early stages, at least based on news reports. But I wouldn’t bet against a sale, and perhaps soon.
From LA Observed