M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, June 17, 2010

AOL Drops Bebo from its Friends List

Yesterday, AOL filed an 8-K with the following disclosure regarding Bebo, their Facebook-like social networking product:

As previously announced, AOL Inc. (the “Company”) has been exploring strategic alternatives for its Bebo, Inc. (“Bebo”) subsidiary including a sale or possible shutdown. The Company has completed this process and is today announcing the sale of substantially all the assets of Bebo to an affiliate of Criterion Capital Partners, LLC.

The Company currently anticipates that following this transaction it will treat the common stock of Bebo as worthless for U.S. income tax purposes. The Company’s current U.S. income tax basis in Bebo is approximately $750 million. As a result of the anticipated worthless stock deduction for the common stock of Bebo under U.S. income tax law, the Company expects to record a deferred tax asset and corresponding benefit to its U.S. income tax provision in the second quarter of 2010 in a range of $275 million to $325 million. The Company’s tax conclusion with respect to the common stock of Bebo is subject to examination by the U.S. Internal Revenue Service. Additionally, given the recent volatility in the Company’s stock price and disposition activity, the Company will be required under generally accepted accounting principles to test the goodwill of its sole reporting unit for impairment in the second quarter of 2010.

AOL/TimeWarner acquired Bebo for $852 million in March 2008.  As part of the recent spin-off, AOL was holding Bebo on its books for the full value  Now, it's written it down to zero.  Ouch.  

Although AOL hasn't disclosed the sale price, Bloomberg reports that AOL got only $10 million for Bebo.  



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Acquirers seem to over-value websites quite often. And valuations of social networking sites always take some leaps of faith in arriving at a number. The winner-take-nearly-everything nature of social networks meant Bebo had little chance.

Posted by: Jason DaCruz | Jun 20, 2010 10:33:11 PM

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