Bloomberg News

AOL Gives Up Control of Money-Losing Patch as Shares Rise (1)

January 16, 2014

AOL Inc. (AOL:US) gave up control of Patch, the local news division hampered by years of losses, by entering into a joint venture with investment firm Hale Global.

Hale acquired a majority stake in Patch for an undisclosed amount. The New York-based firm, which focuses on technology investments, will maintain Patch’s more than 900 sites across the U.S., the companies said in a statement yesterday.

Patch, which covers school-board meetings, local businesses and other neighborhood stories, has been a costly part of AOL’s strategy to transform from a dial-up provider into an advertising-driven publisher. The company had spent more than $300 million developing the sites, which serve communities and neighborhoods across the country.

The deal sent AOL shares up 5.4 percent to $49.82 at 10:10 a.m. in New York, reaching their highest point since the company’s 2009 spinoff from Time Warner Inc.

AOL Chief Executive Officer Tim Armstrong had told investors he planned to turn Patch into a profitable business by the end of last year. As part of that effort, he eliminated about 500 positions, or close to half of its 1,000 employees, in August. The job eliminations cost the company between $14 million and $18 million, according to a filing at the time.

Patch was a pet project of Armstrong, who helped found the startup in 2007 by investing $4.5 million of his own money, allowing it to begin with coverage of three townships in northern New Jersey. It was sold to New York-based AOL for $7 million in 2009. Armstrong, as AOL’s CEO, recused himself from the deal and forfeited the $750,000 he made in profit. He also returned the $4.5 million he recouped from the sale in exchange for shares in AOL.

Patch reached about $70 million in sales last year, or about $78,000 per local site, up from $16 million in 2012. The average cost to operate each site is $140,000 to $180,000, Armstrong had told investors, leaving a wide chasm between revenue and expenses.

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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