Bloomberg News

AOL Surges After Ceding Control of Money-Losing Patch Unit (1)

January 16, 2014

AOL Inc. (AOL:US) shares jumped the most in more than a year after the company gave up control of Patch, the local news division hampered by years of losses.

Hale Global 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.

The deal sent AOL shares up 11 percent, the biggest one-day increase since November 2012. The price of $52.54 at the close in New York was the highest since the company’s 2009 spinoff from Time Warner Inc.

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.

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


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • AOL
    (AOL Inc)
    • $42.42 USD
    • -1.24
    • -2.92%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus