NEW YORK (Real Money) -- This morning, Verizon (VZ) announced its intention to acquire AOL (AOL) for $4.4 billion, or roughly $50 per share, a 16.5% premium to Monday's closing price. I suspect there will be all sorts of reasons put forth for the deal, as well as backslapping from AOL CEO Tim Armstrong over how Verizon is a fantastic choice and from Verizon CEO Lowell McAdam over how AOL is a crown jewel that Verizon had to have.
Or at least have now.
Cited reasons for Verizon acquiring AOL include:
- Acquiring AOL would further its strategy to build out its LTE wireless video and streaming video strategy.
- AOL would contribute to its Internet of Things platform.
From AOL's perspective, Armstrong cited the need for the company to be part of a larger player. Verizon has 1.5 billion connected devices in the U.S. and touches 70% of U.S. Internet traffic, according to Armstrong.
From my perspective, we can read the press release that "Verizon's vision is to provide customers with a premium digital experience based on a global multiscreen network platform." But what does that mean, and why now?
While we all expect Internet connectivity 24/7, it's what we do with that connectivity that matters. Given moves by other companies that are going after over-the-top services -- such as Apple (AAPL) TV and its iTunes service -- that enable consumers to buy TV shows, movies and more, cable companies need to prevent becoming a dumb pipe that loses content revenue. We're starting to see that happen as consumers unplug from phone and TV in favor of higher-speed broadband to access digital content. Why use a messy Verizon FiOS interface when, with two clicks, I can stream a movie via my Apple TV from Netflix (NFLX) or Apple? A simple USB jack lets me stream Amazon's (AMZN) proprietary Bosch series over my FiOS connection.