Sunday, December 25, 2005


Google-AOL: Pursuing a Market Referent for Valuation

During the euphoric days of Web 1.0, dot-com companies used their inflated valuations (paper currency) to make outrageous deals--AOL-Time Warner is an exemplar.

Now Google is explicitly valuing AOL at $20 billion and has paid $ 1 billion as its share of the value. How will it 'realize' the financial value from AOL? Details are emerging from the deal that provide some clue to how Google (and AOL) may work to unlock value in 2008.

NY Times on December 24, 2005 reported that: "The filings say that starting two and a half years into the five-year agreement, Google will have the right to force Time Warner to register its shares in AOL with the Securities and Exchange Commission. This would allow Google to sell the shares on the public market. Time Warner has the option to buy the shares back for cash or Time Warner shares at an appraised value."

AOL is not yet a separate tracking stock--but could well be. At least, Google is not buying Time Warner just to get AOL!

Strategy 1.0 was about ownership of assets; Strategy 2.0 is about relationships in networks. Minority investment is one option for orchestrating these relationships.

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