September 1, 2011 5:37 pm

Buy-out rumours send AOL shares higher

Shares in AOL are up sharply since Friday on reports that the internet access and content company could be poised to go private or be acquired.

Reports that the company has huddled with bankers to explore a sale to a private equity firm were followed by speculation that the company could sell its dial-up internet access business, which accounts for about half the company’s $1.7bn market capitalisation.

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But people close to the company say no deal is imminent. “These rumours have been constant,” said a person familiar with the company's plans. “Private equity is always going to be swirling around AOL.”

This person said AOL was not in talks to be taken private or be acquired by another company. “No deal on the table with KKR,” this person said.

The position was echoed by analysts. “We believe a full private transaction is not imminent,” said Barclays Capital analysts in a note, noting that members of AOL’s board of directors have been buying shares in the company on the open market.

The person also said that Tim Armstrong, chief executive, did not want to spin off the access business, which still accounts for 40 per cent of annual revenues.

But analysts do not discount that AOL might dispose of its access business sometime soon. “While the situation remains fluid and the company has said that its strategy has not changed, we believe AOL could be exploring the potential to sell Access and in so doing is working through other options, including a take-private scenario,” said Barclays.

The rally in AOL’s share price comes after the stock hit an all-time low in August. Shares in the company have still lost a third of their value this year.

“There is no deal on the table, no proposed deal, and Allen & Co is on retainer with us and has been,” said Mr Armstrong. “Our strategy at AOL hasn’t changed and we are moving faster than ever on executing against it.”

The stock’s volatility is a sign of investor impatience, as AOL struggles with Mr Armstrong’s turnround strategy. In the past year, Mr Armstrong has spent about $400m acquiring websites including the Huffington Post network of blogs, the TechCrunch blog and a video how-to site.

He continues to invest heavily to develop Patch, a series of local news sites, and has worked to reduce AOL’s headcount and operating costs.

While noting that AOL could increase revenues through better display advertising, Barclays says “AOL is facing increased competition and macro uncertainty could impact growth.”

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