Reuters - AOL to buy Bebo social network for $850 mln

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AOL to buy Bebo social network for $850 mln

Thursday, Mar 13, 2008 11:40PM UTC

By Kenneth Li and Kate Holton

NEW YORK/LONDON (Reuters) - Time Warner Inc's AOL Internet division will buy social network Bebo for $850 million in cash, bolstering its consumer Web offerings even as the media conglomerate mulls splitting off the business.

Privately-owned Bebo claims about 40 million global members, and the deal promises to significantly expand AOL's growing business of selling advertising on the Internet outside of the United States.

The site is one of the top social networks in Britain and the market leader in Ireland and New Zealand but it is yet to create the same buzz in the United States. Bebo is number No. 3in the U.S., according to AOL, after News Corp's MySpace, and Facebook. According to independent Web traffic measurement firm comScore, Bebo was ranked eighth most popular in the United States in January.

It is generally aimed at a younger audience than the college-favorite Facebook and it boasts that its users spend an average of 40 minutes on the site each day contacting friends, sharing photos and discovering new music.

"AOL, at its core, is a way for people to connect," AOL President Ron Grant told Reuters in a phone interview. "We need to get back to our roots."

Grant said Bebo's heavy focus on media and international interest had made it particularly attractive as it already has a service in Poland and is set to launch in France, Germany, Italy, Spain and the Netherlands in the next five or six months.

"It's a smart move for (Time Warner CEO Jeff) Bewkes," Herb Granath, Chief Executive of Media & Entertainment Holdings Inc, said on a panel at the McGraw-Hill Media Summit in New York, responding to a question about the AOL Bebo deal. "This may be a first shot across the bow: They're going to be a player."

Asked whether the panel believed Time Warner was in the process of dismantling itself following Bewkes' comments on Monday that were interpreted by the press as a signal of the media conglomerate's willingness to sell AOL, another panel member, Spark Capital founder Santo Politi, said Time Warner is "definitely in the business of building."

On Monday, Time Warner CEO Bewkes told investors at a conference he would not rule out a transaction combining AOL with another company. Time Warner has discussed a tie-up between AOL and Yahoo, a person briefed on the discussions said last week.

The Bebo deal comes amid a wholesale transformation of AOL from a dial-up Internet provider to an online ad seller.

The transition has been rocky as it replaced Curtis Viebranz, the head of its advertising operations for about seven months, with Advertising.com chief Lynda Clarizio.

It has spent nearly $1 billion to create one of the biggest third-party display ad units, Platform-A, as it aims to gird against the prospect of bigger rivals. Microsoft Corp is currently pursuing a deal to buy Yahoo Inc and Google Inc has just purchased DoubleClick.

NETWORKING

"Bebo will be the cornerstone of our strategy to transform online experiences for advertisers, media companies and consumers," AOL Chairman and CEO Randy Falco said.

AOL said Bebo would also help round out its personal communications offerings, now comprised of AOL Instant Messenger and ICQ, two popular services that let users send quick text, video and audio correspondence.

But despite its global popularity AOL has not had much success turning that into a business.

"The acquisition demonstrates again how important the social networking sites are to major media and Internet brands, who are looking for new means to advertising growth," said Paolo Pescatore, an analyst with UK-based CCS Insight.

"They represent a powerful opportunity, with their access to demographic data and ability to target specific audiences."

Bebo President Joanna Shields will continue to run the group and will report to Grant after the transaction closes. Falco said he expected the deal to close in "the normal time" -- within around 30 days.

The site was founded by husband and wife Michael and Xochi Birch, who own an undisclosed stake. Shields declined to say whether they would stay after the deal closes.

Bebo is a product of the curious migratory patterns of online social networks. Like many of the world's top social networks, Bebo is based in San Francisco. And like many of these companies, its operations have taken root in distant lands.

Bebo first grew in Britain. Rivals such as hi5 are powerful in Latin America. Google's Orkut first became popular in Brazil, then India and LiveJournal dominates in Russia.

Social network pioneer Friendster now finds the bulk of its users in Southeast Asia, meanwhile the two major U.S. players, MySpace and Facebook, have focused on expanding over the past year into international markets.

MySpace has local operations in 20 countries and has translated the site into languages ranging from Spanish to German to Japanese. Roughly 60 percent of Facebook's 67 million active users now live outside the United States.

Banc of America Securities LLC and Deutsche Bank Securities Inc. advised AOL. Allen & Co advised Bebo.

(Additional reporting by Georgina Prodhan in Frankfurt, Eric Auchard in San Francisco; Editing by Dave Zimmerman and Quentin Bryar)