By Geoffrey Smith
May 12, 2015

Verizon Communications Inc. (VZ) is to buy AOL Inc. (AOL) in a deal worth $4.4 billion.

The long-rumored deal would give the U.S.’s second-largest mobile carrier a platform for growth in the online video market, strengthening the service that it intends to launch this summer.

It would also give Verizon the coveted technology that AOL has developed for placing online ads, a technology that analysts says now accounts for the bulk of its value.

Verizon said in a statement that the acquisition “further drives its LTE wireless video and OTT (over-the-top video) strategy” and “will also support and connect to Verizon’s IoT (Internet of Things) platforms, creating a growth platform from wireless to IoT for consumers and businesses.”

Verizon has yet to provide much detail about the online video service it’s planning, but company executives have said it will combine a mixture of paid-for and ad-supported content.

Verizon is paying $50 a share for AOL, a 23% premium over the company’s three-month volume-weighted average price. AOL shares had lost 8% over the first five months of the year.

In one way, being bought for what amounts to some of Verizon’s loose change closes the circle for AOL, whose rise to fame and riches with its pioneering Web access business culminated in its $183 billion megamerger with Time Warner Inc. in 2000. The company’s value collapsed with the end of the dot.com bubble and the merger was unwound amid much acrimony in 2009.

Verizon CEO and chairman Lowell McAdam said in a statement that “AOL has once again become a digital trailblazer, and we are excited at the prospect of charting a new course together in the digitally connected world. At Verizon, we’ve been strategically investing in emerging technology, including Verizon Digital Media Services and OTT, that taps into the market shift to digital content and advertising. AOL’s advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams.”

That vision contrasts starkly with the more difficult profile of Verizon’s maturing core business of operating cellular networks. Industry executives see wireless online video services as a crucial way of keeping and adding to existing subscriber bases, particularly among younger users.

Verizon said it expects the deal to close in the summer, pending regulatory approvals.

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