It seems the more the Microsoft-Google battle unravels the more Corporate America is lining up to get ringside seats. A report by Aline Van Duyn in the FT recently revealed that Dick Parsons, Chairman and Chief Executive of media mammoth Time Warner is now serious about selling a minority stake in the company’s undervalued subsidiary partner AOL to either one of the technology titans, and what’s more, the world can expect news of the decision sooner rather than later.
So far AOL has been a disappointing actor in the online wars, clocking up a unique audience of only 72 million against Google, MSN and Yahoo’s audiences of 79 million, 89 million and 99 million respectively and failing to deliver any clear indication of equity value for Time Warner in a slowly resurging fad for technology. AOL currently sits at around $10 billion, against Google’s $100 billion and Microsoft’s $250 billion: if either one of the providers goes through with a purchase, it could push AOL’s value up to $22.5 billion or more.
The prospect must seem like a Christmas present to Parsons, who having come from the days of presiding over a messy merger between AOL and Time Warner had enough problems of explaining the bewilderingly complex cultural and financial integration of the two firms to employees, let alone analysts, now finds himself in the comfy position of being able to pick and choose between two competitors who appear to want – and need – the minority stake as desperately as the other. Not only is there the prospect of finally gearing up on AOL’s value, but the added commitment of intellectual capital the purchasing firms will offer could be just what the undervalued internet provider needs to leap towards securing a place in the history of the next century in the internet world.
Although the market is baking on an AOL delivery, the chances that the Chairman picks Microsoft should not be ruled out. This will be much to people’s – let alone the market’s – surprise, but will have the effect of restoring some rationale back in the NASDAQ. As I pointed out on a previous post here, Microsoft’s P/E of 20 seems dubiously low compared to the industry average of 45, let alone Google’s now near 90.
One suspects too that this might well have been the plan that Bill and Friends have been concocting all along, and it wouldn’t be the first time the Redmond, Washington giant has pulled such a stunt either: let the competitor soar on the open market and ride high in speculator’s glory, keep relatively low-key while in serious negotiations, then make a head-on challenge that grabs analyst/trader headlines and declare victory while watching the competitor’s stock – and hence much needed capital – collapse in the crucial hour. Game Over. Could Google be the hatrick for Microsoft on a list that already reads the defeat of two of America’s biggest technology titans of all time – IBM and Apple?