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AOL Surprises, Buys Huffington Post - InternetNews.
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AOL Surprises, Buys Huffington Post

In one of its biggest moves yet to reinvent itself as a leading provider of Web content, AOL has entered into an agreement to acquire the news and comment site the Huffington Post for $315 million.

The purchase, announced on Monday, extends AOL's efforts to build out its content portfolio as it looks to burnish its brand and boost advertising sales.

AOL, with a balance sheet still heavily propped up by revenue from its eroding dial-up Internet access business, has been advancing a content-first strategy since it emerged as a standalone, publicly traded company following its spinoff from Time Warner.

AOL has been investing heavily in original editorial content in areas such as its network of hyper-local news sites, Patch, as well as acquisitions of prominent Web brands, including the recent purchase of the high profile technology blog TechCrunch.

Under the acquisition agreement, Huffington Post co-founder Arianna Huffington will supervise AOL's editorial production as the head of the newly formed Huffington Post Media Group, taking the titles of president and editor-in-chief of the new division.

"This is truly a merger of visions and a perfect fit for us," Huffington said in a statement. "The Huffington Post will continue on the same path we have been on for the last six years -- though now at light speed -- by combining with AOL."

In her new role, Huffington will be responsible for integrating the news and opinion coverage from her site with AOL's existing Internet properties, comprised of verticals ranging from tech to entertainment.

AOL boasts that the combined content division will reach an audience of 117 million Americans, and 270 million Internet users globally.

Investors reacted coolly to the news of the acquisition, with shares of AOL off slightly in midday trading.

Ben Schachter, an analyst with Macquarie Securities, is advising clients to "wait on the sidelines" absent evidence that AOL can execute on its turnaround strategy.

"AOL's $315 million acquisition of The Huffington Post demonstrates that management is serious about trying to grow its display ad business through content creation. We think this is an aggressive move, but complicates the story," Schachter wrote in a research note.

"AOL remains a company in transition. In many ways, it is a binary equation, either its content business becomes profitable or it doesn't. If AOL can figure out a way through organic efforts and M&A to make its content profitable, investors would likely be rewarded," he added, while also warning of the significant challenges the company faces, including a declining ISP business and a "weakened brand."

AOL will pay $300 million of the purchase price in cash, and the remaining $15 million in options.

Kenneth Corbin is an associate editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.