New York -- Twelve years after pulling along the Israeli instant-messaging company ICQ for a hefty price of $400 million, AOL Inc., the Internet advertising company spun off from Time Warner Inc., yesterday announced it has agreed to sell its ICQ instant messaging service to the Russian Internet holding company Digital Sky Technologies, at a huge loss for $187.5 million.
Rumors has been spreading for months about AOL's plan to dispose of ICQ, which was established as an online messaging technology startup in 1996 by the Israeli company Mirabilis, and AOL purchased the parent company in 1998.
Despite failing to keep the glow in the United States to different companies such as MSN Messenger and AIM, ICQ continues to be the most favorite IM service in Russia and other smaller international markets.
“The acquisition of ICQ is a strategic enhancement of our business in Russia and Eastern Europe. ICQ's long-standing brand name and its sizable loyal customer base together represent a very attractive opportunity to further strengthen our position in the region,” says Yuri Milner, Chief Executive Officer of DST.
The disposal came as AOL's first-quarter profit declined by 58 percent on slumping advertising sales and agreed to sell an instant-messaging service for $187.5 million.
ICQ's selling price was at the downscale of an estimated $200 million to $300 million, John Blackledge, a New York-based Credit Suisse analyst who rates the stock “under-perform,” said in a note to clients.
“We expect display advertising to continue to under-perform the market and believe search declines will continue for the next few years,” Blackledge wrote.
Moscow-based DST, which owns a number of Russian Internet companies, including the biggest content site in Russia, Mail ru, is on a shopping parade when it comes to acquiring or funding in various internet and entertainment properties. Facebook, Groupon and Zynga are among the companies it has lately bought stakes.
DST also possesses a Polish social-networking site, although DST is widely known mainly by virtue of the fact that controlling shareholder Milner invested $200 million in Facebook last year.
AOL, which turn out from Time Warner last December, is also seeking to dispose of assets such as Bebo, the UK social networking site it bought for nearly $1bn in 2008. A decision to sell or shut down will be made by next month.
Chief Executive Officer Tim Armstrong, who took the position a year ago, is shedding assets he cannot afford to turn around to focus on reigniting growth in U.S. ad sales.
Last quarter “was a highly turbulent quarter but they did what they said they were going to do, shut down unprofitable business units,” David Joyce, a New York-based analyst at Miller Tabak & Co. analyst who recommends buying the shares, said in an e-mail. “ICQ is an international asset, and AOL wants to focus on U.S. content.”
“As AOL continues its turnaround effort, we are lucky to find a great home for ICQ with DST. DST is a leading ground-breaker in the Internet investment field and has a remarkable presence in the markets where ICQ is strong. Founded and run in Israel, ICQ has been a revolutionary company on the Internet. We wish them great success as a part of DST and will be rooting for them going forward,” Armstrong said in a statement.
ICQ employees in Israel received a letter from AOL chairman and CEO Tim Armstrong, who sought to allay their fears by promising that business would continue as usual as far as they are concerned.
The acquisition of ICQ will empower DST with access to an entirely new population of Internet users, tens of millions of them in fact. About 80 percent of ICQ's users are between the age group of 13 and 29 and expend more than five hours a day attached to the service.
DST was founded in 2005 and is the largest Internet company in the Russian-speaking and Eastern European markets.