Continuing on AOL from the Lazard report on Time Warner, some suggestions on AOL: (and the valuation financials from page 294-302 are kinda crazy and outside the scope of my limited financial understanding, but suffice to say are in the $20 billion ballpark)
“”AOL aspires to compete with high growth, fast moving companies like Yahoo, Google, MSN, IAC and eBay who are making significant investments to enhance their strategic position. AOL, on the other hand, has experienced substantial underinvestment over the last few years….AOL needs to use the cash flow of the dial-up business to aggressively migrate to broadband
and to invest in its online advertising driven businesses. AOL could also benefit from a separate equity that it could use to effect acquisitions in the Internet sector that would likely be at multiples substantially higher than the multiples of a consolidated TWX. AOL, given its financial characteristics, the challenges that the division faces within a highly competitive sector, and a fundamentally different investor base, should be separated from the other TWX divisions and made its own public company.”
More in extended entry…
“An independent, public AOL could use its substantial free cash flow to reinvest in the business and
could develop an acquisition currency for potential M&A transactions to drive long-term growth.
TWX has allowed small and relatively marginal acquisitions since 2001 and lacked the ambition or
vision that was necessary to allow AOL to compete. Yahoo, over the same period, redefined a large portion of its business through acquisitions (e.g., Overture) and, in the process, created substantial shareholder value, whereas AOL outsourced its search to Google. The use of AOL stock for potential acquisitions would likely be the most effective and cheapest approach for TWX shareholders to re-build AOL.”
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