German media giant Bertelsmann AG announced Friday that it is selling its 50 percent stake in AOL Europe and AOL Australia back to AOL in a stock deal worth between $6.5 billion and $8.25 billion (US$).
The move has been highly anticipated since the announcement of the AOL/Time Warner merger in January. The privately held Bertelsmann owns more than 600 media-related companies and is a global rival of Time Warner.
The company said it plans to use the proceeds of the deal to build its e-commerce business and to provide seed money for new e-commerce and media content ventures.
Focus on E-Commerce, Not ISPs
“We are highly committed to taking business directly to the subscriber, and that means e-commerce in the future more than a typical ISP or service business,” said Bertelsmann chairman and chief executive Thomas Middelhoff.
Once the deal is finalized, the Dulles, Virginia-based AOL will be on its own as it looks for a way to grab a larger segment of the online population in Europe and Australia. AOL Europe currently reaches about 3.8 million households, the company said, and has grown exponentially since its launch in 1995.
The world’s largest ISP said it anticipates that online users in Europe will quadruple to 125 million by 2004 and that international online advertising will rise 80 percent over the next five years.
The firms said that the stock deal involves using put and call mechanisms for AOL to buy out Bertelsmann’s shares. The company said that payment, in either cash or stock, will be made after January 31, 2002.
In a separate deal, the two companies announced a four-year, $250 million marketing alliance, in which AOL will market Bertelsmann’s massive inventory of music, magazines, books, entertainment properties, and its book and music club on AOL, CompuServe, Netscape Online, Digital City, Winamp and its other global Internet properties.
In return, Bertelsmann will provide broadband access to AOL Europe and will offer its local media outlets to provide branded localized content.
Shift Began Last Year
In 1995, Bertelsmann acquired a five percent stake in AOL for $50 million. In August 1999, Bertelsmann made a huge profit on its investment by selling nearly 4.3 percent of AOL for $700 million. It still owns 0.7 percent of AOL.
With this latest influx of capital, which will come during the next two years, Bertelsmann has clearly set its sights on raising the Internet bar in Europe. Last summer, it also announced the formation of an online auction site with German partner Gruner & Jahr. The site, called ANDSOLD, will challenge eBay in the relatively untapped European online auction market.
Bertelsmann has also expanded its online bookstore in Europe in an effort to take on Amazon.com. The company owns a 41 percent stake in Barnesandnoble.com.
In June 1999, Bertelsmann also invested $12 million in Tripod, an online community owned by Lycos.