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Bertelsmann in AOL sale
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March 17, 2000: 9:44 a.m. ET
German media firm sells stake in AOL Europe venture to partner for up to $8.25B
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LONDON (CNNfn) - German media conglomerate Bertelsmann agreed Friday to sell its 50 percent share in AOL Europe in about two years to partner America Online for as much as $8.25 billion. But Bertelsmann will maintain close ties to AOL as a "preferred" provider of media content and e-commerce properties for AOL's worldwide Interactive network, the companies said.
Bertelsmann's decision to dispose of the stake had been expected since AOL unveiled its plan to buy Bertelsmann's rival Time Warner in January. Time Warner is the parent company of CNN.
AOL Chairman and Chief Executive Steve Case told reporters Friday that talks on the change of AOL Europe's ownership had been in the works well before his company's acquisition of Time Warner was announced in January. Analysts said it was clear Bertelsmann had been caught flat-footed by the planned marriage of its longtime U.S. partner and one of its biggest rivals, suggesting the move was a setback for a media company such as Bertelsmann which has made little secret of its aspirations for industry leadership.
"Bertelsmann was a bit chagrined by the AOL-Time Warner deal and needed to recast its relationship with AOL," said a London-based analyst who requested anonymity. "They were behind the curve. The partnership is now being restructured in a way that makes it much more distant, less intimate."
The German firm is Europe's largest media company and No. 4 in the world, with revenues of around $16.4 billion, ranking behind Walt Disney (DIS: Research, Estimates), Time Warner (TWX: Research, Estimates) and Rupert Murdoch's News Corp. It is looking to increase its focus on its own growing arsenal of Internet-portal businesses, which it says make it the world's second-biggest player in e-commerce behind Amazon (AMZN: Research, Estimates).
In a $250 million, four-year alliance announced Friday, Bertelsmann's music, magazine, book and other entertainment properties, along with its e-commerce sites will be featured on the AOL, Compuserve and Netscape Online interactive services worldwide, as well as on AOL Instant Messenger.
Wide-ranging media interests
The two companies also agreed to cross-promote each other's brands, with Bertelsmann providing broadband distribution for America Online and AOL Europe brands.
America Online (AOL: Research, Estimates) said it has the option to buy Bertelsmann's 50 percent of AOL Europe for a price between $6.75 billion and $8.25 billion, payable after Jan. 31, 2002 in cash or stock, at America Online's discretion. AOL also will take immediate ownership of Bertelsmann's 50 percent interest in AOL Australia, subject to regulatory approval.
Bertelsmann's media interests range from book publishing - it owns Random House - to BMG Entertainment in the music industry, television, radio and print services. Among a growing portfolio of Internet interests it owns 41 percent of online book retailer barnesandnoble.com.
AOL Europe, Europe's leading e-commerce and Internet services provider, reaches more than 3.8 million households, including more than 3.4 million members of AOL and Compuserve and more than 400,000 registered users of Netscape Online.
Bertelsmann said it intends to use any proceeds generated from the sale of its half-share in AOL Europe to build its existing e-commerce businesses and to provide seed money for new Internet-related activities.
By 2004, the companies said, there will be twice as many online consumers outside the United States as within it. European online users are expected to quadruple in number to 125 million, while online advertising is expected to grow by 80 percent annually over the next five years.
"We have great confidence in the future growth of interactive services in Europe," Case told reporters in a conference call Friday. "As mass-market consumers in Europe increasingly go online, we believe that they will be looking for the full package of content and services (that AOL provides)."
The companies also said that Michael Lynton, president of AOL International, will become acting chief executive officer of AOL Europe. AOL Europe's current chief executive, Andreas Schmidt, will keep on working with  the company during a transition period before returning to Bertelsmann.
Bertelsmann's chief executive and chairman, Thomas Middelhof, who joined his longtime friend and partner Case in the conference call, said Friday's deal was the culmination of a year-long review of Bertelsmann's Internet strategy.
Case said AOL would seek ways to gain a stronger foothold in the market for Internet services accessible by mobile phone, which many analysts believe is set to supplant the personal computer as the preferred method of reaching the Internet.
"My belief is that the Internet is moving to another phase and that it's all going to be about integration, it's all going to be about...connecting networks in a seamless way," Case said. "We think wireless is very important, but we come at it not from a mobile-centric, or TV-centric or PC-centric way, but from a consumer-centric way." 
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