In HuffPost's acquisition by AOL, Arianna seen as media merger's big winner

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By Paul Farhi
Tuesday, February 8, 2011

Always-charming, ever-clever Arianna Huffington became something else in the late hours after the Super Bowl on Sunday: a shrewd and unimaginably successful businesswoman.

The liberal TV pundit and author surprised the media and technology businesses by announcing late Sunday night that she had sold the Web news portal that bears her name, Huffington Post, to AOL, the floundering Internet-access company and would-be new-media news provider, for $315 million.

Rough estimate of Huffington's personal cut of the deal: $100 million, virtually all of it in cash, according to Wall Street analyst Laura Martin.

Huffington, 60, was nearly universally proclaimed as the big winner in the transaction, and not just for the astounding payday less than six years after launching "HuffPo." The deal also puts her in charge of AOL's somewhat motley collection of Web sites - Mapquest and Moviefone, TechCrunch and "hyper-local" news-site company Patch.

In effect, Huffington is taking over AOL .

Huffington (nee Stassinopoulos), a Greek immigrant divorced from former Republican congressman Michael Huffington, celebrated her big score by offering "champagne, Greek cookies and rugelach" to her staff and AOL's executives at her New York headquarters, as she tweeted Monday.

AOL is buying a popular success, but Huffington Post's original journalism has tended to be indistinct and forgettable. Its biggest stories, arguably, were revelations from the campaign trail in 2008 that then-candidate Barack Obama had criticized some voters as "clinging to guns and religion" and Bill Clinton's unguarded thoughts about the writer of a Vanity Fair profile ("dishonest . . . a scumbag"). The reporter of those scoops, a "citizen journalist" named Mayhill Fowler, quit writing for the site last year because it refused to compensate her for her work.

Rather, Huffington Post has attracted an enormous following - roughly 20 million unique visitors a month - largely by aggregating and rewriting the work of hundreds of journalists who work for other news organizations. Its most popular offerings are typically the links in its right-hand rail, a collection of entertainment, technology and lifestyle stories of varied seriousness and veracity. On Monday, for example, the rail included such headlines as "Soderbergh Affair . . . Hef's Virginity Loss . . . Fat Russell Brand . . . Pink's Baby Bump."

Huffington and her co-founder, HuffPo chairman Ken Lerer, as well as other investors will be compensated in cash. Many analysts saw that as telling. Huffington decided that cash, rather than AOL's stock, is king.

There's a good reason for that: New York-based AOL has deflated at an alarming rate. Its dial-up customers have been deserting in droves for years, and its fallback strategy - offering news and information online - hasn't yet paid off. The Wall Street Journal has called AOL "a sinking aircraft carrier (or maybe the Titanic)."

Last year, AOL posted a net loss of $782.5 million, compared with a $249 million profit in 2009. Its revenue fell 26 percent to $2.4 billion.

In 2006, the year AOL formally ditched its original name, America Online, the company reported more than three times the revenue it generated last year. It was handsomely profitable, too, churning out nearly $750 million in net income.

"We believe this transaction will add significant acceleration to our company, to our strategy and to our shareholder returns," said AOL chief Tim Armstrong, joined by Huffington, during a conference call with investors Monday. "The Huffington Post is one of the best properties on the Internet."

It had better be. AOL is using nearly 40 percent of its cash reserves to bet on Huffington's ability to draw Web traffic. The sense that AOL had gone too far shadowed its stock Monday; it closed down 3 percent on the news, continuing its steady fall.

Martin, a senior analyst at Jefferies & Co. in Los Angeles, was among the few analysts who were highly bullish on the deal. She sees rising revenues ahead for HuffPo, and expanding profit margins as well. By 2012, the site should generate about $100 million in revenue, about half of which will be profit, she says. "If they hit their numbers, and I admit that's a big 'if,' it will look like [AOL] stole them," she said.

Huffington, says Martin, "didn't want to cash out and go to the beach. She decided she can have more fun by sticking around and running this. She's a pioneer."

An AOL spokesman said it was too early to tell how employees at the company's Dulles campus will be affected. But the deal is causing some wariness at one AOL-owned site, Politics Daily. Some news reports said the nearly two-year-old site will be folded into the HuffingtonPost, but executive editor Carl Cannon said Monday, "We really don't know."

Capital Business staff writer Steven Overly contributed to this report.


© 2011 The Washington Post Company

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