(Mashable) - The deal values AOL at $50 a share, which is 23% more than the company's average stock price over the past three months. AOL's stock jumped 18% in premarket trading after the news, while Verizon stock fell 1.3%, indicating that investors are more excited that AOL is being bought than that Verizon is doing the buying.
Once a household name that provided many Americans with their first access to the Internet, AOL is now primarily a media and technology company with a focus on advertising, thanks to a turnaround orchestrated by Armstrong. The acquisition makes Verizon an immediate player in the online advertising market, and brings it into closer competition with Comcast, which made its own entry into the space with its $360 million acquisition of Freewheel.
The deal is Verizon's attempt to grow in mobile video and advertising. AOL shifted aggressively in 2013 toward entering the business of online advertising technology, most notably through its $405 million acquisition of Adap.tv, which had been one of the leading online video ad platforms. The move helped AOL to quickly become competitive in the online video advertising market, which has been a lucrative area as display ads have fallen out of favor.
"The combination of Verizon and AOL creates a scaled, mobile-first platform offering, directly targeted at what eMarketer estimates is a nearly $600 billion global advertising industry," Verizon said in a statement.
On mobile devices, however, the market is a more modest one. Juniper Research has estimated that advertising on mobile devices is expected to reach $105 billion by 2019, up from an estimated $51 billion this year. AOL is a big player in ad technology, though it trails behind the giant in the industry, Google.
"If there is one key to our journey to building the largest digital media platform in the world, it is mobile," Armstrong said in the email to staff. "Mobile will represent 80% of consumers' media consumption in the coming years and if we are going to lead, we need to lead in mobile."
In January, when acquisition rumors about AOL and Verizon started brewing, Verizon CEO Lowell McAdam shot down the speculation and said, "AOL, along with lots of other media companies, are potential for us to do partnerships."
Since its disastrous merger with Time Warner in 1999 -- a sign of the height of the Internet frenzy of the time -- AOL has added significant holdings, particularly in media. It owns The Huffington Post, TechCrunch and Engadget, in addition to its portal, AOL.com, which is still kicking.
Armstrong promised employees that their salaries in the new company "will be equal or better to your AOL compensation."
"The simple answer to the question of 'what does this mean for you?' should be, 'I just got more resources, more support and more growth opportunity,'" Armstrong wrote.
Verizon is paying for the acquisition in cash and commercial paper, which is a kind of short-term debt. LionTree Advisors and Guggenheim Partners advised Verizon, while media boutique investment bank Allen & Company advised AOL.