Google Nears $1 Billion Deal To Take Stake in AOL

Google Nears $1 Billion Deal
To Take Stake in AOL

By JULIA ANGWIN, KEVIN J. DELANEY and DENNIS K. BERMAN
Staff Reporters of THE WALL STREET JOURNAL
December 16, 2005 3:47 p.m.

Time Warner Inc.'s AOL and Google Inc. have entered exclusive negotiations over a deal that would have the search giant pay $1 billion for a 5% stake in AOL, deepening their advertising partnership, according to a person close to the situation.

The talks shut out Microsoft Corp., which has been wooing AOL since January.

As part of the deal, AOL would be able to sell advertising among the search results provided by Google on AOL Web properties. AOL's sales staff would also sell display ads across Google's network of Web publishers.





WSJ's Julia Angwin discusses a possible partnership between Google and AOL.
• Plus, WSJ's Kevin Delaney and Porter Bibb of MediaTech Capital Partners discuss the deal.

Google will promote AOL's Web properties among the sponsored links in its search results, and will include AOL's collection of online videos among its search results. Google's arrangement to provide search technology for AOL, which was set to expire at the end of next year, would be extended for five years.

Microsoft had hoped to convince AOL to use MSN's search engine instead of Google's. Talks between the two companies began early this year, when Microsoft first approached AOL about switching its search-engine alliance.

When news of the talks leaked to the media in September, Google, working with cable giant Comcast Corp., emerged to try to save its relationship with AOL. Time Warner was considering proposals from both companies by Thanksgiving, and in early December appeared to be in favor of a deal with Microsoft.

Web portal Yahoo Inc., also a potential suitor, dropped out of the running in early November.

Spokespeople for Google and Time Warner declined to comment Friday. A Microsoft spokeswoman couldn't immediately be reached.


The contest illustrates how far companies are willing to go to secure a chunk of the quickly expanding market for Internet advertising, by far the fastest-growing advertising medium. Online sales in the third quarter rose 34% to $3.1 billion from a year earlier, according to PricewaterhouseCoopers LLP. Search ads, which display ads based on queries users enter into search engines, are the biggest segment of that market.

The deal also comes at a difficult time for Time Warner, as hedge-fund investor Carl Icahn wages a dissident campaign to replace a majority of the media giant's directors. Mr. Icahn has threatened to sue Time Warner's directors if they sell a stake in AOL at too low a price or approve a partnership that makes it difficult to sell or spin off AOL at a later date.

For its part, Microsoft has struggled for a firm foothold in the online ad landscape. Its MSN unit, whose search ads are currently sold by Yahoo, has lagged behind Google in market share and in its ability to woo large Internet advertisers. It wanted to team with AOL to get the scale needed to compete with Google and Yahoo and bring more advertisers to an online ad system, dubbed AdCenter, that Microsoft is testing outside the U.S.


Courtsey : Wall Street Journal