Bloomberg News

AOL Reorganization Will Merge Dial-Up Unit With Web Services

December 15, 2011

(Updates with closing shares in 11th paragraph.)

Dec. 13 (Bloomberg) -- AOL Inc. Chief Executive Officer Tim Armstrong plans to reorganize the company to combine its dial-up Internet access business with its Web services, including AOL Instant Messenger.

The new AOL services group would be one of four business units to be created under the new structure, Armstrong said yesterday in an interview. The details will be presented to employees on Dec. 14, before the plan takes effect in January. The other three divisions will consist of advertising, local services and the Huffington Post media group, he said.

Armstrong, two years into an effort to revive the flagging Web portal, aims to get consumers with AOL accounts to use more of the company’s features. The newly combined dial-up and online applications group will report to Chief Financial Officer Arthur Minson. That arrangement suggests that AOL wants to impose fiscal discipline on the unit, said Clayton Moran, an analyst at Benchmark Co. in Delray Beach, Florida.

“The finance guy is going to try to squeeze every dollar out of the value of those businesses,” said Moran, who has a “hold” rating on AOL’s stock. The reorganization also may make it easier to spin off a division later, he said.

AOL has no plans to sell or spin off any part of its business, Armstrong said. In the coming months, the New York- based company’s various offerings, including e-mail and videos, will be more closely tied together and targeted to individual users, he said.

Seeking Cohesion

“We had AOL services split up between multiple groups,” Armstrong said. “We have decided that putting them into the same structure, with the same cohesion, will help us with everything from registration services all the way to the experiences we offer in mail and the home page.”

AOL began planning the reorganization in September, Armstrong said. AOL’s applications and commerce group, which had been run by former Yahoo! Inc. executive Brad Garlinghouse, will be part of the new services business. Garlinghouse stepped down from the company last month.

Jon Brod, who co-founded the Patch news business, will head the new local-services division, AOL said. In addition to Patch, the MapQuest site will be part of that unit. Ned Brody will lead the advertising division, while Arianna Huffington will serve as head of the media group, the company said.

Getting Users Engaged

Web services such as AOL Mail already help the company keep users on its site, said David Joyce, an analyst at Miller Tabak & Co. in New York.

“They add value as it keeps users engaged, keeps them on the site longer, allows for greater search and display ad monetization,” Joyce said.

AOL fell 1.1 percent to $13.85 at the close in New York. It has fallen 42 percent this year.

The company’s market value has tumbled to $1.36 billion. That may make AOL a candidate for a buyout by private-equity investors, according to Ken Sena, an analyst at Evercore Partners Inc. in New York. In that scenario, the company would be taken private.

Armstrong said earlier this month it “doesn’t matter” whether AOL remains public or goes private. Continuing to operate as an independent entity is the “first desired course of action,” he said.

Minson, who joined AOL in 2009, received a $1.5 million stock-option grant on Dec. 5 in connection with his growing role at the company, AOL said last week in a regulatory filing.

Executive Vice President and General Counsel Julie Jacobs, whose role also will grow under the reorganization, received a salary increase to $600,000, according to the filing. Her responsibilities include overseeing the corporate development department, the company said.

--With Brad Stone in San Francisco and Dina Bass in Seattle. Editors: Nick Turner, Jillian Ward

To contact the reporter on this story: Douglas MacMillan in San Francisco at Dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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