AOL on Thursday claimed it could “supercharge” the revenues from advertising on social networks after the Time Warner-owned portal agreed an $850m offer for Bebo, the closest rival to Facebook and MySpace.

The all-cash deal will crystallise a fortune of roughly $595m for Michael and Xochi Birch, the husband and wife who own 70 per cent of the site they founded in July 2005. The two entrepreneurs have built Bebo into one of the most popular social networking sites in the US, with strong followings in the UK, Ireland and New Zealand.

The deal will also yield a $140m windfall for Balderton Capital, which funded Bebo with $15m in May 2006 in exchange for a 15.7 per cent stake, now more than nine times the original investment.

Executives refused to disclose Bebo’s revenues or profitability but analysts said AOL’s offer implied a similar valuation per user to that in News Corp’s $580m acquisition of MySpace in 2005. However, it was far below the $15bn valuation for Facebook implied by Microsoft’s investment in the site last year.

Randy Falco, chairman and chief executive of AOL, said it could “supercharge the monetisation” of Bebo’s 40m members by applying Platform A, its online ad-serving network.

Joanna Shields, who will stay on as president of Bebo, added that it saw “an extraordinary opportunity” in linking up with AOL’s existing messaging and community tools, AIM and ICQ.

AOL had looked “very carefully” at the resistance other social networks had faced when they tried to advertise more aggressively to their communities, Mr Falco said, but believed Bebo differed from Facebook or MySpace.

“The user engagement on Bebo is way off the charts compared to the other competitors, and we’re not going to do anything to jeopardise that,” he said.

Bebo carries fewer banner advertisements than other sites but has worked with brands such as Nike and Apple on viral marketing strategies and has woven product placement into its online TV shows such as KateModern and Gap Year.

The deal, the most significant since Jeff Bewkes became chief executive of Time Warner earlier this year, marks the conglomerate’s latest attempt to migrate AOL from relying on declining subscription revenues for internet access to become an advertising-supported portal.

Analysts at Bear Stearns estimated that Bebo’s cash flow was “very modest” but said the likely dilution to Time Warner’s earnings was outweighed by the strategic benefits of the move.

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