The Coming Week in Europe: Bertelsmann Sheds Stake in AOL Europe but Remains in the Net

The media giant will focus on content and receive needed funding for its publishing, TV and music businesses.
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BERLIN -- This week will mark the beginning of the rest of

Bertelsmann's

Internet-based life.

The German media giant's decision to sell its 50% stake in

AOL Europe

to

America Online

(AOL)

doesn't signal Bertelsmann is abandoning the Internet, but shifting its strategy. Indeed, while investors digest what the sale means for Bertelsmann's Internet strategy this week, they will also be able to buy shares in the IPO of one of the company's other Internet joint ventures,

Lycos Europe

.

Bertelsmann's sale of its stake in AOL Europe had been widely expected since America Online announced plans to acquire Bertelsmann rival

Time Warner

(TWX)

. The deal will bring Bertelsmann between $6.75 billion and $8.25 billion in stock or cash after Jan. 31, 2002, providing it desperately needed funds to build its publishing, television and music businesses.

All in all, Bertelsmann is making the best of a bad situation. AOL's linkup with Time Warner earlier this year made it pretty clear the importance of Bertelsmann's content would decline over time, but part of the deal calls for Bertelsmann to pay America Online $250 million to remain a preferred content provider. That should allow the company to retain the best possible position regarding AOL's 23 million customers given the circumstances.

Leaving AOL Europe means Bertelsmann will now concentrate its online ambitions on pushing the company's considerable content rather than becoming a major

ISP

player. It doesn't change the company's desire to become a leader in e-commerce and Internet-related media.

"Bertelsmann retains a strong strategic interest in expanding its online presence," says Lanny Baker of

Salomon Smith Barney

. The decision to quit AOL Europe wasn't caused "by a change of heart regarding the Internet or online media," he believes. Salomon Smith Barney has an investment banking relationship with AOL and has a 100 price target on its shares. AOL closed at 64 3/8 on Friday, up 3.8%.

The deal will likely increase Bertelsmann's interest in developing Lycos Europe, which will debut on Frankfurt's

Neuer Markt

on Wednesday in an initial public offering expected to bring in roughly $700 million. The joint venture, which Bertelsmann started with

Lycos

(LCOS)

back in 1997, includes an Internet portal, a small free ISP and a German language search engine. To bring in even more cash, Bertelsmann is also considering floating its online books-and-media retailer

bol.com

later this year as well.

The privately held Bertelsmann also has stakes in online bookseller

barnesandnoble.com

(BNBN)

and the highly successful Berlin-based multimedia firm

Pixelpark

. Last week Pixelpark announced an alliance with

Banco Bilbao Vizcaya Argentaria

to establish a joint venture to provide Internet and multimedia solutions in Spain and Latin America. Bertelsmann is also in the process of developing broadband Internet services for Europe.

Such deals may not provide the huge-scale Internet operations that AOL Europe did, but along with a strengthened focus on its core content businesses they show that Bertelsmann still very much sees its future online.