Google buys AOL stake

Posted on 31 Mar 2006 at 10:11

Google and AOL have finally shaken hands on the deal which means that the search engine will buy a 5 per cent stake in the company for $1 billion in cash.

An update to the original agreement reads 'On March 24, 2006, the parties signed definitive agreements governing this $1 billion investment in AOL and Google expects that the investment will close in the second quarter of 2006'.

Under the deal struck between Google and Time Warner last December, the search engine would buy the 5 per cent stake in what is still the world's biggest ISP, as well as giving AOL the right to sell its own keywords through the lucrative Google AdWords system.

At the time Google felt it had to strike a deal with Time Warner as the alternative was a deal with arch rival Microsoft. As the existing AOL contract to provide search and contextual advertising was worth 12 per cent of Google's revenues, the search engine had little choice but to come to an agreement. The two parties are now said to be exploring ways to extend their relationship.

According to Reuters, Google and Time Warner have been in discussions about furthering their strategic relationship. On the table were issues such as distributing AOL's video content through Google Video and interoperability between their rival instant messaging products.

Where, we hear you ask, will Google find such a sum? Will it need to dip into the annual profits to fund the deal? Not a bit of it. Google has just filed a statement with the Securities and Exchange Commission announcing its intention to sell 5.3 million shares of its Class A common stock which will raise an estimated $2.1 billion. This of course leaves the question of what Larry and Sergey plan to do with the other $1.1 billion.

On the 29th of March the Google Class A common stock was worth $394.98 per share.

Author: Steve Malone