The search service company has agreed to pay $1 billion to acquire a 5% stake in America Online. This news comes as a shock to Microsoft, which was the first company to consider buying AOL, doing so eight months prior to Google’s move.
Richard Parsons, CEO of Time Warner, and Eric Schmidt of Google reached an agreement last week, although the details of the negotiations have not been disclosed.
With AOL in its portfolio, which is the largest customer and is estimated to contribute 9% of Google’s revenue in 2005, the search engine will have enhanced capabilities to compete with the news and entertainment websites of Yahoo and MSN.
Meanwhile, Parsons is in need of Google’s search and advertising technology to boost revenues for AOL and alleviate pressure from shareholders, particularly billionaire Carl Icahn. He has demanded measures to increase Time Warner’s stock price (which has dropped 7% this year) and threatened to take legal action against the company’s board if the situation does not improve.
Time Warner’s stock rose by 16 cents to $18 last week. Google’s stock is currently at $430.15, while Microsoft saw a slight decrease of 2 cents, bringing its stock price to $26.90 on the Nasdaq stock market.
