Why Private Equity May Dial Up AOL

For a private equity firm looking for the cheapest way to get online, AOL shares may be a bargain. The Internet pioneer spun off from Time Warner in 2009 plunged to a record low of $10.22 on Aug. 10 after cutting this year’s profit forecast because of slowing growth in display advertising sales on its niche content websites. The stock then jumped 8.9 percent on Aug. 25 after AOL announced it had retained investment bank Allen & Co. and law firm Wachtell, Lipton, Rosen & Katz as advisers. “I have no doubt,” says Michael Holland, chairman of money manager Holland & Co., which oversees more than $4 billion, “that private equity buyers are currently looking.” Graham James, a spokesman for New York-based AOL, confirmed the hiring of the firms and declined to comment further.

Even after its recent spike, as of Aug. 30, AOL traded at 71¢ on the dollar on the basis of book value, or its assets minus liabilities. That makes AOL cheaper than the 46 other U.S. Internet companies that have market values greater than $500 million, data compiled by Bloomberg show.