Los Angeles — AOL, on Thursday announced that it had finally managed to jettison Bebo to Criterion Capital Partners, a private equity fund based in Los Angeles, for an undisclosed sum, after acquiring it for $850 million just two years ago.
Back in 2000, AOL’s $164 billion acquisition of Time Warner is widely remembered as one of the most catastrophic deals in corporate history. By comparison, AOL’s acquisition of the social networking site Bebo for $850 million two years ago was tiny. But ultimately, it proved to be as much of a fiasco.
The deal was validated this afternoon, though no details of the price were revealed.
Although the sale price was not disclosed, but it is rumored that Los Angeles-based private equity fund Criterion Capital Partners LLC of Studio City California, snapped up the site for US$10 million or less, while others quote anonymous sources describing the price as an “exceptionally uninspiring number.” This is an interesting location — a suburb of LA nowhere near Silicon Valley.
AOL considered its outstanding Bebo stock “valueless,” but it will get a nice break from writing off its unsuccessful 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.
Interestingly, the buyer evidently specializes in turning around companies with revenues of $3m to $30m, which does not say too much for the state of Bebo.
Bebo’s new owner, Criterion Capital Partners, will apparently give the lagging social network some spit and polish, then flip it for a nice profit. But why did not AOL do something to breathe new life into its expensive acquisition? “Look at what Facebook has done — it continually revamps itself,” remarked Andre Zdanow, chief market strategist at Charles Vista. “That is what social networks do to stay relevant.”
On Twitter, even Steve Case, the founder of AOL who masterminded the Time Warner deal, felt inclined to take a potshot: “AOL buying Bebo for $850 million and then selling two years later for $10 million does not seem like a winning strategy,” Case wrote.
When AOL acquired Bebo, the social network was flocked by millions of devoted users and plenty of momentum, its chief executive at the time, Randy Falco, called it a game changer that would turn AOL into “a social media powerhouse.’
Amazingly, the social network fared well 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.
“The deal will allow Bebo’s users to remain within the social platform that they know and love, while enabling a new owner to bring new possibilities and experiences to bear,” the AOL spokeswoman Trish Primrose said in an e-mail message. “Criterion Capital Partners are specialists in facilitating growth plans and turnarounds and are well placed to drive Bebo’s effort to strengthen its foothold within the highly competitive social networking arena.”
So is there any positive side of the sale for AOL? Yes. A big loss that AOL can turn into a “significant tax deduction,” Primrose said.