Last updated: June 17, 2010 8:28 pm

AOL sells Bebo to Criterion Capital

AOL is to sell Bebo, the social networking site it bought in 2008 for $850m, to California-based merchant bank Criterion Capital Partners for an undisclosed sum.

The deal marks the final unwinding of the online group’s $2bn buying spree.

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The internet company spun off from Time Warner last December, has moved to shed its loss-making divisions under new management led by chief executive Tim Armstrong.

While Bebo was popular in Britain among teenagers, it had fallen far behind its rivals Facebook and News Corp-owned MySpace.

The firesale is the latest in a long history of acquisitions that have turned sour for traditional media companies.

News Corp’s attempts to restructure MySpace to catch up with Facebook have highlighted the difficulties of merging technologies and cultures.

Financial details of the sale were unavailable. Techcrunch, a technology blog, reported that AOL received under $10m for Bebo. AOL will also receive a deferred benefit on tax assets in the second quarter of $275m-$325m, according to a regulatory filing on Thursday. Following the transaction, AOL will treat the common stock of Bebo as “worthless” for tax purposes.

“The deal will allow Bebo’s users to remain within the social platform that they know and love, while enabling a new owner to bring new possibilities and experiences to bear,” Mr Armstrong said.

“Criterion Capital Partners are specialists in facilitating growth plans and turnrounds and are well placed to drive Bebo’s effort to strengthen its foothold within the highly competitive social networking arena,” he said.

AOL will retain Bebo’s leased San Francisco office, cash and furnishings. Layoffs have left Bebo with only 30 employees.

It was not immediately clear what broader plans the new owner has for what was once the most popular social network site among UK 13 to 22-year-olds.

Adam Levin, managing partner of Criterion said: “The young, highly active user base, revenue history, presence in countries throughout the world and solid technical infrastructure make it an attractive media platform both as a standalone entity and in the context of our broader investment objectives”.

Analysts were pessimistic about the new owner’s ability to reverse Bebo’s fall.

“It would require significant investment to change the downward trajectory that Bebo has been in,” said Ray Valdes, an analyst at Gartner, a technology research firm. “It’s like an old car missing an engine and a few cylinders and a couple of wheels.”

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