It’s been a long decade, but AOL will once again be an independently traded company on December 9, when Time Warner will spin off shares. Every Time Warner shareholder (disclosure: including me, from when I was employed there) will receive shares in AOL using the following formula: one share of AOL will be distributed for every 11 shares held in Time Warner.
In other words, we finally have an approximate market capitalization for AOL. The business will be valued at 1/11th 1/12th the value of Time Warner. At today’s market cap of $37.8 billion for Time Warner, based on a closing price of $32, that implies a $3.4 $3.15 billion market cap for AOL. Unless Time Warner shares surge over the next few weeks, it will be in that ballpark. Update: My initial math was slightly off. As some commenters point out, the implied value is 1/12th of Time Warner since at the time of the distribution everyone with 11 shares will receive an additional share. SInce we know how much Time Warner is worth, it is possible to come up with an implied value for AOL based on that ratio, even though that value will change the minute the shares start trading.
So the AOL business which was valued at $5.7 billion just last July when Google sold back its 5 percent stake, is now worth even less—not to mention the initial $20 billion valuation when Google first invested in 2005 or, going back even further, the original $109 billion merger with Time Warner way back in 2000.
But let’s forget about all that. Onwards and upwards. With a little cost-cutting, those AOL shares will shine. Right?
Since 12 shares would account for the whole, I think that the estimated valuation should be 1/12th of the current market cap of Time Warner.
You might be right. In that case, the implied value would be $3.15B
Erick,
Maybe it’s easier to see this way. If a company does a 2 for 1 split, the market cap does change. It just means there are twice as many shares.
Time Warner giving out 1 AOL share per 11 Time Warner shares determines the number of shares. Just in like the 2 for 1 split, if they were to give out 1 share per 5.5 Time Warner shares, this wouldn’t mean AOL was worth twice as much. It just means there are twice as many shares.
really?! 3.4B?! I’d guess it’ll probably end up about 1/10 of that.
their gonna need some plastic surgery to be competitive. need to make strategic acquisitions to seriously get back in the game.
who still uses aol?
ever hear of AIM?
Yes I’ve heard of it.
When I was in the army, I used to AIM before I FIRE.
If AIM is another thing please inform me, because this is the facebook and twitter era.
/s
AIM…yeah…wasn’t that toothpaste?
I do…..I still use their cds for coasters.
Isn’t it December 9th?
The 3.4 Billion could be right. But your arithmetic? That someone gets 1 AOL-share for 11 Time Warner-shares is just the arithmetic of partition AOL to all Time Warner stock holders. I don´t think it says that they think AOL is only 3.4 billion worth ….
I’m actually cheering them on… I hope they do something useful again.
Does this mean you’ll be quitting TechCrunch?
my technically unsavvy folks still use AOL. unfortunately, AOL was among the more user-friendly communities back in 1995 when I signed them up and they have stuck with them to this day (though via broadband, not dial up). on the good side, AOL insulates a lot of users from navigating the real web. on the bad side, AOL insulates a lot of users from navigating the real web.
The spinoff share ratio of AOL to Time Warner has nothing to do with the respective valuation of either company. The value of AOL will be determined by the price of AOL stock once it starts trading.
Incorrect, parent companies spinning off a division perform valuations of the new company. Considering Time Warner can value the company much better than the public can, 1/11 value of Time Warner should be an accurate estimate.
Incorrect. Markets (aka “the public”) value a company. Investment bankers make only goofy attempts at coming up with a number.
Being one of those goofy bankers (although not involved in this transaction), Ben and others are correct – that 11/1 ratio means absolutely nothing.
True, the actual value of AOL will only be known once AOL shares begin to trade. But we can back into an implied valuation based on the distribution ratio of 11/1 since we know how much TWX shares are worth.
In 1998 Apple had a market cap of 5 billion. Now they are at over 200 billion. You never know. If they play their cards right they can make a comeback.
I don’t think Apple’s ever crossed the 200B mark, nor has Google.
AOL is still around. Wow. And its worth how much? Don’t think so….
Um, yeah they are worth that much. How abut you look at their financials for this decade?
Wow – I forgot that AOL even still existed (and yes – I still have my AIM account – but it’s been through Trillian for the past 8 years – so I don’t count that)
Some basic math:
AOL value = AOL share price * AOL number of shares
TW value = TW share price * TW number of shares
We know the number of shares of AOL = 1/11 number of shares of TW. We need to know the relative share prices to make any inference about the relative values.
So move on, nothing to see here…
It isn’t worth a 1/10th of the price. AOL has three businesses: (1) subscriptions for internet access (most customers think they have to pay to get online or to keep their AOL address – they don’t. So that line of business only makes money until customers wake up – nice model) (2) Second rate advertising: basically selling unsold ad space without any of the sophistication of Google as to who is looking at what, when and why. As Google, Facebook and even Yahoo get smarter and are able to offer advertisers incredibly precise advertising bulls-eyes, margins for the secondary advertising market will shrink and continue shrinking (nice business model there again), (3) Content (right – the New York Times and even Rupert Murdoch is sweating – what have you got?). And as if the complete absence of a business mode right now wasn’t bad enough, AOL has become the best of example of a company without any strategic direction whatsoever. AOL has thrashed around for over a decade now. My test that it still hasn’t changed is its lack of commitment to any single direction. AOL is not willing to put its money down on a play – why should I?
Even if the subscription part goes away tomorrow, they will still be worth a billion or so.
Wow – I had forgotten that AOL even existed any more. I am surprised that the market cap is even as high as it is. If it were me those shares would be getting dumped tommorrow
agreed
Wouldn’t it be funny if AOL does better than Time Warner in the end.
Twitter gets new offices with no revenue and AOL gets spun off and has revenue. Hrm, could we be seeing AOL bid on Twitter?
a bid? do you honestly think they havent talked to twitter? the twitter fags dont want to sell because they have gigantic egos even with their low 10 mill userbase.
Ha. Plus, Twitter is paying AOL for their new office space.
What bad merger the Time Warner and AOL merger was. A complete loss of market value and the devastation of a decent tech company.
It could have been better if the divisions of both companies were merged into the other more effectively.
Many of the divisions back in 2000 would have done better if they were merged directly into other parts of the company it was a halfassed merger from the beginning.
entertainment division ( all tv/film/music related ventures)
publishing division (anything dealing with publishing)
isp/cable/communication division (aol, time warner cable, Netscape, Compuserve etc.)
Erick,
I have a ton of respect for your analysis in general, but you really need to acknowledge you dropped the ball here.
The 11 to 1 ratio has absolutely nothing to do with valuation.
It’s damaging to your (deserved) stellar reputation leaving this post up.
You didn’t get the spin off deal structure right.
The 1 share of AOL is paid as a dividend to the existing Time Warner Shareholders for every 11 shares they own. So don’t sum up 1+11 = 12, the numbers describe total different entitites that ARE NOT of equal quality so summarization is not allowed (law of math, you can only sum up equal entities).
A dividend has nothing to do with market capitalization at all.
A Company can be worth 100 billions and only pay a dividend of 10 millions (in cash) or it can pay a dividend in form of shares of a spin off.
The worth of this dividend is known when the new stock is trading and has nothing to do with the worth of the Company that pays this dividend.
Ok this page is about tech and not about financials, but I think it is worth to look into the metrics that describe the “new” AOL.
AOL accepts that their access business is fading away, that this leads to shrinking search and advertising revenues as they can’t force any longer users to start with their AOL-Page. So AOL has to earn attention and reach through generating content and maintaining services. But Content + Services is a field where a lot of pure play competitors fight for the same people and companies.
AOL will need time for the fundamental shift they are making. They will still need to maintain old fashioned access technology that cost a lot with always shrinking revenues.
BING, Google, Yahoo, IAC and the cross media companies already run huge content networks, advertising networks, integrated solutions – it will be an uphill fight for AOL.
Most of the comments here about deal structure are correct. The author’s math only works if one assumes that each share of AOL trades at the same price as Time-Warner stock after the distribution to shareholders. While that may be the company’s hope, there can be no assurance that the shares will in fact trade at that level. So the dividend ratio says nothing definitive about AOL’s value.
Also, AOL was NOT valued at $5.7 billion last July when Time-Warner bought out Google’s shares. A significant amount of the cash paid to Google was a “catch up” payment for cash distributions while Google was a shareholder. The implied value of AOL’s equity at that time was somewhere between $2.5 and $3.5 billion. You can find the math here: http://roberthh...07/aol-rip.html in footnotes 1 and 2.