I wonder if Time-Warner CEO Richard Parsons
is a good poker player? You have to think he's won a few large pots
given how he has played a great game of trying to bluff potential
investors in making a bid for AOL over the past few months. First,
AOL's on the table. Then, it's not for sale. Then, Google and Comcast
are ready to pony up. Then, it's Microsoft striking a deal. Now, Google
is apparently ready to ante up $1-billion for a 5% stake
in AOL. So Richard, whatcha going to do? It strikes me that Google has
to be the most enthusiastic bidder given about 10% of its revenue comes
from its relationship with AOL. With $7-billion in the bank, Larry and Sergey
have all the cash they need to make a deal to keep AOL onside and, as
important, thwart Microsoft's plans. There are a couple very
interesting angles to Google's potential investment in AOL. Is it just
a starting point for a much larger stake down the road? If so, does
Google have the interest/appetite to take control of AOL, which would
cost $20-billion to acquire based on the 5% for $1-billion proposed
Google investment. Keep in mind, Google has no track record in making
large acquisitions - something that won't be any easier just because
Larry and Sergey are really smart guys. Another possibility is Google making a really big splash and taking a run at acquiring Time-Warner, which is currently valued at $83-billion. Let's conservatively assume, Google makes a $100 billion bid. Based on Google's value of $127-billion,
a "merger" would give Google shareholders 56% of the combined entity. I
suspect Google swallowing Time-Warner is a remote possibility given
Google could make a huge strategic gain by only spending $20-billion on AOL.For the time being, other questions that need to be asked involve Google's plans to integrate AOL's content into the Google empire. Does Google quietly tweak its algorithm to highlight/promote AOL content, which would drive more Google traffic from AOL? Does Google use AOL content to enhance its portal to go head to head with Yahoo? I think this high-stakes game has just begun and it will only get a lot more intriguing.
Update: John Battelle believes AOL could go public at some point, which could make Google's investment pay off both strategically and financially. Battelle thinks AOL could be worth $50-billion to $60-billion if Wall St. gets its hands on an IPO - based on what Google is valued at now. I'm not convinced Google ponied up a $1-billion to be a small minority investor in a publicly-traded AOL. It seems like a lot of money to shell out to protect advertising revenue.