WASHINGTON, May 12, 2015 – Stocks are doing their usual back and fill act today. Adding to Monday’s downdraft, averages are down again Tuesday morning as if to continue penance for last Friday’s rally. As of the noon hour, bulls are trying a feeble counter-attack, but the jury is still out on that effort.
Meanwhile, today’s still-unfolding big news is AOL’s (symbol: AOL) agreement to be acquired by telecom and wireless giant Verizon (VZ) for approximately $50 per share, giving the proposed deal a current value of about $4.4 billion.
Word is also leaking out that AOL may spin off its wholly-owned Huffington Post site. That’s a popular URL that offers predictably comfortable pabulum for the left wing masses, generally by cracking wise and dissing anyone not in the liberal in-crowd with snarky (and ill-informed) attack stories disguised as news. It’s sort of like the MSNBC of the Internet, although Daily Kos is even worse in that regard. Objectivity here is no object.
Back to the main thread, the news of AOL’s proposed acquisition by Verizon boosted AOL stock up by about 8 points, with the stock currently trading around the $50.50 mark. For its part, Verizon is down about 0.35 at $49.44 give or take. Both stock reactions are generally par for the course in a non-hostile acquisition.
The company being acquired usually shoots up to approximately the rumored price per share. Meanwhile, the acquiring company sinks by a less predictable amount, given how wise the Street thinks the proposed deal will be, i.e., how quickly—if ever—will the acquired company be “accretive” to the acquirer’s earnings?
Today’s initial reaction seems to indicate that AOL is getting what the Street feels is a more or less fair price for its shares, as the stock is now trading only slightly above the alleged acquisition price of its shares.
If traders think there might be a bidding war, as is often the case in a hostile takeover proposal, the target company often trades well in excess of the proposed takeover price, indicating that plenty of speculators think another suitor may enter and cause a bidding war. That’s similar to a situation that some homebuyers encounter in a hot market when bidding for a house they really want.
No word about competing bidders yet for AOL, the former America Online, the ur-online service that was key to exploring the still a-borning Internet back in the day when you used a dial-up connection on a regular copper phone line to log on, via a pokey modem that ran at the blinding speed of 300 to (if you were rich and lucky) 2400 baud. AOL was a very big deal in those days, because it was super easy to use, tailored as its original edition was primarily for Macintosh computers, which were already easy to use.
That changed as the 1990s inched along, as AOL spurned its once key Mac community by tailoring its service more toward Microsoft’s then quite-clunky Windows. (Frankly, its still sort of clunky.)
The Maven was an early adopter of AOL and thought it was pretty cool at the time. He confesses being old enough to recall when, back in the 1980s, the only way you could encounter this earlier, clunkier, and browser-less Internet, at least on a Mac, was via a nifty piece of software called “Red Ryder,” which enabled you to get onto a command line interactive information and chat service run by General Electric, of all companies, and dubbed “GEnie.”
But AOL was a leap forward, providing you with some primitive visuals, taking the early surfing experience way beyond GEnie’s command line. Plus, with AOL, you could communicate with all sorts of people all over the world with a cool invention called “E-mail.”
Cooler yet, AOL was actually founded and headquartered during its earliest days right here in the Maven’s longtime hometown of Reston, Va.
AOL made it kind of fun and user friendly by popping up clever icons and sounds during the logon and mail reading sequence. What AOL user could forget that “You’ve got mail!” announcement? That became so ubiquitous that Hollywood even cranked out a 1998 film using that catchphrase as a title. Hah! Let’s see if any of your smartypants, frustratingly iPhone-savvy kids have any knowledge of that ancient history.
Here’s a YouTube video that takes you down memory lane, at least if you are of a certain age:
AOL quickly got too big for its britches after dissing Mac users, failing to provide Macsters with updates for months while the Windows people got all the good stuff, so the Maven flipped them the bird and headed for Earthlink (ELNK), which at least made an effort to court Mac people.
At the same time, AOL got even more too big for its britches, buying up the massive old-media Time-Warner Empire and renaming itself AOL-Time-Warner. The company eventually shifted most of its operations to New York, of course.
Unfortunately for wunderkind founder Steve Case, the rules of hubris kicked in soon after the merger. AOL never quite made the leap to broadband, or at least didn’t make it in time, becoming a massive drag on the entity Case acquired and now controlled. The result was Case’s eventual departure from the corporate board room, as Time-Warner spun off its now rapidly declining AOL piece, eventually spinning off its own cable piece as well.
AOL flopped around for years, but eventually managed to re-establish itself as a site, although it’s never prospered like it did in the late 1990s. For that reason, it seems fitting and proper, in a “Back to the Future” way, that it’s being swallowed whole by what amounts to an old media company (via telephony).
The deal enables Verizon to continue its creep into the area of content—a key move, given that the TV piece of its quite-good FiOS fiber service (which the Maven currently uses) is experiencing the same packaging and unbundling issues with TV content that cable providers like Comcast are also being forced to deal with. We’ll all have to wait and see whether this is a good deal for both companies and/or if any other suitors show up with the same kind of synergies on their minds.
Not much more on our radar today. The bond vigilantes, like Dracula, seem to have risen from their collective graves lately, goosing yields by dropping the bottom out of bond prices.
This, in turn, is creeping out stocks, particularly utilities and high dividend-payers. It’s all based on reading the tea leaves and correctly guessing exactly when, more or less, the Fed will jack up those interest rates and it’s making a mess out of the stock market, whether you’re a fundamental investor or a technical analyst.
So we’ll just sit tight today (again) and avoid trading tips that will likely become bad advice in a heartbeat.