Rumored Verizon Deal With AOL Would Be a Win-Win (VZ)

Mergers and acquisitions rumors are mostly worthless, but the chatter over a possible deal between Verizon Communications Inc. (VZ) and AOL, Inc. (AOL) rings truer than most — and would be a huge win for anyone holding AOL stock.

Verizon stock VZ stock dividend dow dividend blue chip dividendVZ is said to have approached AOL about a straight-up acquisition or some kind of joint venture, Bloomberg reports.

Yes, the usual caveats are in place — Verizon hasn’t made a formal proposal and no agreement is imminent — but based on the little we know so far, this is tie-up that would make good sense for both parties.

VZ is playing catch-up to rival AT&T (T) in mobile video, and mobile video is enjoying torrential growth in advertising spending. (Just think of what T will be able to provide its wireless customers once it closes its deal for DirecTV [DTV].)

At the same time, as much of a punchline as it may be, AOL is now a very different company under CEO Tim Armstrong. Sure, the web portal and media properties get all the attention, but the promising part of AOL is its programmatic advertising business (technologies that enable the automatic buying and selling of ads online.)

If VZ is going to expand its mobile offerings, it’s going to require content and it’s going to need to be able to monetize that content. That’s where AOL comes in. It has content and experience in video (Huffington Post, for example). More importantly, AOL presumably has the know-how and tools to make for a successful mobile advertising business, too.

AOL Stock Just a Snack for VZ

Here’s another thing that makes this rumor sound more plausible than some others: Telecoms are in acquisition mode, and an AOL deal would be comparatively small change. Heck, VZ spent $130 billion to buy out Vodafone’s (VOD) stake in Verizon Wireless. AT&T’s deal with DirecTV is valued at more than $67 billion. AOL, meanwhile, had a pre-rumor market cap of $3.5 billion.

Be forewarned, however, that although a deal with AOL makes strategic sense for VZ, it wouldn’t really move the needle on its business anytime soon, and therefore has little bearing on VZ stock right now.

For AOL stock, however, the implications are momentous. AOL Tim Armstrong has been a whirlwind of ADD-like activity ever since he took the reigns, desperate to transform the company into something self-sustaining and profitable before the last of its dial-up customers dies.

But make no mistake — the sale of AOL has always been Armstrong’s end game. Before AOL, he was Google’s (GOOG) North American sales chief. Armstrong has been a salesman his entire career — and salesmen sell things.

AOL stock was nice holding for a couple of years there as Armstrong dumped cash on restive shareholders, but that came to a halt in 2014. The market may have had a more-than-solid year by gaining 11%, but AOL stock was a dud. It lost 1% last year. It’s only a matter of time before the big holders of AOL stock start griping again.

If you hold VZ stock, this could be the kind of strategic tuck-in acquisition that barely registers now, but pays off later.

If you hold AOL stock, hold on a little longer. This could be the spark that gets AOL stock back to its all-time highs.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/vz-aol-stock-verizon/.

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