Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

AOL sells Bebo for scrap - and a $275 million tax break

By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- AOL sold social network Bebo to a private investment group for an undisclosed sum on Thursday, after buying it for $850 million just two years ago.

The online media company unloaded almost all of Bebo's assets to a Criterion Capital Partners affiliate. AOL deemed its remaining Bebo stock "worthless," but it will get a nice break from writing off its failed investment: AOL said it expects to record a tax benefit of $275 million to $325 million in the second quarter.

Though the companies did not comment on the value of the sale, The Wall Street Journal reported that it was "a small fraction" of what AOL paid to buy Bebo.

That drew a snarky reply from a man with intimate knowledge of overvalued acquisitions. AOL founder Steve Case tweeted his thoughts on the deal: "AOL buying Bebo for $850 million and then selling 2 years later for $10 million doesn't seem like a winning strategy."

This isn't the way AOL figured the deal would end. AOL had high hopes for Bebo as it tried to go toe-to-toe with social networking giants like Facebook and MySpace.

"We will be a social media powerhouse," said then-AOL CEO Randy Falco on a conference call with analysts in March 2008. "This deal is a game-changer."

The social network took off in the United Kingdom, but failed to gain any significant traction in the United States. Bebo had just 5 million U.S. visitors last month, compared to more than 130 million visits to Facebook, according to online traffic tracker comScore.

That failure to gain any momentum prompted AOL to cut its losses with Bebo. In April, the company announced it would either sell Bebo or simply close it down. AOL said that maintaining the site "would require significant investment in order to compete" with the likes of Facebook, Twitter and MySpace.

AOL, which was spun off by CNNMoney.com and Fortune parent company Time Warner in December, is in the midst of a turnaround effort from CEO and former Google executive Tim Armstrong. The company is trying to build up its content network and grow its ad revenue to compete with bigger online media companies like Yahoo (YHOO, Fortune 500).

Shares of AOL (AOL) fell slightly in morning trading on Thursday. To top of page

Index Last Change % Change
Dow 21,078.28 65.86 0.31%
Nasdaq 6,204.65 41.63 0.68%
S&P 500 2,414.74 10.35 0.43%
Treasuries 2.25 -0.02 -0.71%
Data as of 12:24pm ET
Company Price Change % Change
Bank of America Corp... 23.30 -0.06 -0.26%
Ford Motor Co 10.80 -0.16 -1.41%
Chesapeake Energy Co... 5.31 -0.24 -4.38%
General Motors Co 32.49 -0.71 -2.14%
Best Buy Co Inc 60.05 9.63 19.10%
Data as of 12:09pm ET
Sponsors

Sections

Sears reported another giant drop in sales at both its Sears and Kmart chains. The stock may be surging on hopes that the company will avoid bankruptcy, but the company needs a real strategy to get customers back in the stores. More

Trump is aiming to get at least 6 million Americans off government aid and into full-time jobs. Liberals call this cruel. Conservatives call it overdue. A lot of economists call it magical thinking. More

Sometimes your financial health could use the same kind of checkups and preventive care that you apply to your physical health. More