Google Declares the Obvious: AOL's Not Worth $20 Billion–But What's Next?
Please see this disclosure related to me and Google.
Yesterday, in a quarterly regulatory filing, Google stated what everyone and their mother and their sisters and their cousins and their aunts have known for about, say, years now:
That its $1 billion investment in AOL, made in 2005 at a $20 billion valuation, “may be impaired.”
While that makes it sound like AOL has had a few too many beers, actually, this is accounting-speak for: Our investment has tanked big time.
“There can be no assurance that impairment charges will not be required in the future, and any such amounts may be material,” Google (GOOG) said in its filing.
Indeed and coincidentally, in a piece about AOL’s downward valuation and its negative implications for its ability to sell itself to Yahoo (YHOO) or Microsoft, which was published yesterday before Google essentially wrote off a lot of its AOL investment, BoomTown wrote:
Of course, $10 billion is about half as much as AOL was valued in late 2005, when Google forked over $1 billion for five percent of the unit.
At the time, no one actually believed the $20 billion was a real figure, but that it was due more to Google’s incentive to overpay in order to clinch a renewal of its search deal with AOL and ward off Microsoft’s aggressive efforts to steal that business away.”
The Google filing is the company’s official warning that its AOL payola will now have to be accounted for and could result in a charge to future profits.
For a moneymaker like Google, that might not be a problem.
More interesting, of course, are the geopolitics of the whole thing. As part of its investment, Google got the right to demand that the AOL unit be spun off in an IPO or Time Warner (TWX) would have to buy back Google’s stake.
If Time Warner managed to get Microsoft (MSFT) to buy AOL, one wonders what Google might demand.
After all, while its AOL investment might be a dog, it’s still Google’s flea-bitten mutt.