Surprising news flashed across my screen this weekend (links at the conclusion). If I have this right, and goodness knows I've been wrong before, Glenn Reynolds, the Editor in Chief of the link-feste Instapundit, has made a bid to acquire AOL.
Strange ice, and hot snow, how can this be? Remember, just over ten years ago AOL purchased TimeWarner in a stock and cash transaction, but that deal quickly went south, with Time spinning off a much reduced AOL. More recently, AOL bought Huffington Post and that has not been an entirely happy conjunction either, having raised the profile of neither entity.
Let's look at the numbers: AOL, with a market cap of $1.8 billion, is trading at just under $19, and has fluctuated between $22 and $10 over the past twelve months; but if we drill down we see that it is trading at a price-to-earnings ratio of 134.46, suggesting a diminutive income stream for a mature, first generation digital business. We've found no recent statements from the company about a strategy for improving those numbers.
Instapundit, on the other hand, has always "punched above its weight." Though it is a closely-held private company, Insta- has a very carefully defined brand, and has featured awesomely robust (for its size) advertising sales courtesy of Amazon. We understand that Reynolds's fixed costs have been low, aside from a high level of re-investment in technology, so even with the sketchiest of data for that company we can project a very high return on capital for its venture.
Nevertheless, Instapundit would not have cash on hand for so expensive a purchase, so we might surmise that Reynolds has been backed in a (highly) leveraged buy out by a venture capital firm working with a major issuer of corporate paper. (I have a call into analyst Sidd Finch at the firm of Cerf, Guest & Plimpton for more on this matter.)
Update: in another sector of the media market, N+1 is said to be acquisition mode.
More about the Instapundit - AOL Acquisition here, here and here. Watch for updates here.
Update 2: Disclosure: The Main Point has received an injection of readership via an Insta-lanche.