Verizon agreed to pay $50 per share, a 17% premium over AOL's Monday close. Shares of AOL edged past Verizon's offer on Tuesday morning, reaching $50.35 and suggesting that investors expect a higher takeout price.
Yahoo! (YHOO) could take an interest in AOL. Yahoo! CEO Marissa Mayer has faced pressure from Starboard Value's Jeffrey Smith to pursue a merger with AOL. Shares of Yahoo! gained 53 cents, or about 1.2%, to $44.13 on Tuesday.
Verizon Chairman and CEO Lowell McAdam touted the value of AOL's digital content and advertising technology.
AOL's media portfolio includes properties such as The Huffington Post, TechCrunch and Engadget. The online group has also built out its advertising technology offerings through acquisitions such as the $101 million purchase of marketing technology company Convertro in 2014 and the $405 million acquisition of video advertising platform Adap.tv Inc. in 2013. AOL also has the remnants of its Internet access business.
Craig Moffett of MoffettNathanson described the deal as "a tantalizing first step" by Verizon towards establishing a mobile ad platform.
"AOL has successfully built a robust ad tech stack with assets across mobile, social, video, and programmatic for both advertisers and publishers," he wrote. "It has premium audience measurement and attribution capabilities, as well as content creation and distribution technologies."
Jennifer Fritzsche of Wells Fargo Securities wrote in a note Tuesday that the acquisition would play into Verizon's plans to announce a new mobile video service over the summer. "We believe the primary attraction of AOL was the technology it has developed for selling ads and delivering online and mobile video," she wrote.
Verizon will draw on cash on hand and commercial paper to fund the purchase. By 2018 to 2019, the New York telecom said it would reduce its leverage to levels before its blockbuster consolidation of its stake in Verizon Wireless in 2014. Verizon paid Vodafone Group (VOD) $130 billion for its minority stake in the wireless joint venture last year.
While buying AOL would give Verizon a foothold in a digital content and advertising, it is a relatively minor move for one of the world's largest telecoms. Moffett noted that the $4.4 billion investment in AOL reflects a sliver of Verizon's $350 billion enterprise value. "It's the tip of the tip of the tail, and it is clearly not going to wag the whole dog," he wrote.