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AOL Has Been in Talks to Spin Off HuffPost as Part of Verizon Acquisition Deal

Content costs a lot and needs a lot of investment. Enter new investors.

Asa Mathat

According to numerous sources, while it has been negotiating its deal to sell to Verizon, AOL has also been in advanced discussions with a number of parties to spin off its flagship Huffington Post content unit.

The talks have been most serious with Axel Springer, the German media conglomerate, but a number of private equity firms have also expressed interest in the high-profile property. Sources said the Huffington Post has been valued at above $1 billion in this scenario, which would either be a complete sale or, more likely, structured as a joint venture.

The move would be designed to bring in more investment for growth for the Huffington Post, which AOL bought several years ago for $300 million. High content costs and the ability to monetize those assets, as well as grow them — AOL also owns TechCrunch and a number of other content properties — has been hard for the company. And competitors like BuzzFeed and Business Insider have garnered massive fundings to spur expansion.

AOL’s earnings report from Q1 spells out the issue quite clearly: Its “Brand” group — which includes HuffPo and TechCrunch — grew its revenue by 8 percent over the past year and posted operating income of $13 million. Meanwhile, its “Platforms” group — which specializes in automated ad sales on other publishers’ properties — grew by 21 percent but lost $10 million.

Of course, Verizon could pony up more dough for the site’s leader, Arianna Huffington, part of a alleged strategy on the part of the phone giant to own more content. But sources said Verizon was far more focused on advertising tech and video and that some kind of spinoff or joint venture was far more likely for the Huffington Post.

“For us, the principal interest was around the ad tech platform that Tim Armstrong and his team have done a really terrific job building,” Verizon COO John Stratton told analysts on Tuesday morning.

Sources added that AOL’s other content properties have not been part of these talks, although there may be others interested in investing in or purchasing them. If this all sounds needlessly complex, you’re right — such convoluted dealmaking has been part of the AOL repertoire for a while now.

In any case, Arianna Huffington is likely to support any deal in which she and her unit gets more money to grow globally. Since AOL bought her company she has talked to bankers about buying it back and has considered other strategies to split off from AOL.

That said, Armstrong has been generous to the Huffington Post, funding its growth consistently. It has used that investment and has been aggressively expanding, opening new sites across the world. In fact, it is set to launch four more soon, including in China. Huffington largely controls the content unit, save for the advertising staff that AOL has centralized, so her buy-in will be key to any new deal.

In an interview with Re/code this morning, Armstrong didn’t address that Huffington Post spinoff scenario directly, although he seemed to leave the door open. “We’ve spoken to partners about content and scaling,” he said. “Obviously, we’ve seen a lot of interest in the content brands we have. So over the course of the summer, stay tuned.”

I’d take that as a yes, as Armstrong has a tendency to be cagey to the point of obfuscation. He has long denied any talks with Verizon, including when rumors of an acquisition deal surfaced earlier this year. And when I asked him directly and in person last week after hearing those acquisition discussions were again taking place, rather than simply declining to comment, he denied explicitly that they were serious.

I guess not. Thus, today, Arianna Huffington and Tim Armstrong work for the phone company.

[UPDATE: An AOL spokesperson just sent me this: “​​AOL owns a portfolio of premium, global content brands including The Huffington Post, TechCrunch and Endgadget, among others, and all of them will continue to be part of our business as we go forward.” That may be the party line, but it is in direct contrast to what I was told this morning by several top AOL sources who would know, who had also confirmed the Springer talks last week when I inquired.]

This article originally appeared on Recode.net.

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