AOL unloads its Bebo business

The social-networking site is sold to Criterion Capital Partners perhaps for as little as $2.5 million.

By Charley Blaine Jun 17, 2010 1:17PM
Updated: 1:47 p.m. ET

There are deals, bad deals, dumb deals and truly disastrous deals.

It looks like AOL's (AOL) acquisition of social-networking site Bebo falls into the disastrous category.

The company bought Bebo for $850 million two years ago. It's now selling Bebo to Criterion Capital Advisors for less than $10 million, maybe a lot less. 

The confusion over the actual price stems from the fact that neither company will say what the price was. TechCrunch, a blog that tracks the technology industry, reported Wednesday that Bebo was sold for less than $10 million. The blog said today that the price might be as little as $2.5 million.

In a Securities and Exchange Commission filing made late Tuesday, AOL said its tax basis in Bebo was $750 million and will result basically in a total loss. AOL

For that, it will be eligible for a tax deduction of $275 million to $325 million.

AOL said on April 6 it was weighing a sale or shutdown of Bebo. The website wasn't attracting enough users or advertising to mount a serious competitive attack on social-networking rivals Facebook and MySpace, owned by News Corp. (NWSA). And AOL said it wasn't prepared to put the money up to attack those rivals.

The price AOL paid for Bebo included $766 million of goodwill, according to regulatory filings.

"Criterion Capital Partners are specialists in facilitating growth plans and turnarounds," AOL Chief Executive Officer Tim Armstrong said today in a memo to employees. "For AOL, the transaction will also create a meaningful tax deduction."

Criterion, headquartered in Los Angeles, said the deal was led by managing partner Adam Levin, along with strategist Paul Abramowitz and web entrepreneur Richard Hecker.

Criterion will take over Bebo’s global operations immediately and base the company out of San Francisco, Bloomberg News said.

AOL shares were off 0.2% to $22.23 this afternoon. AOL was spun off from Time Warner (TWX) in December, starting trading at $27.

AOL is not alone in having problems. MySpace has not been much of a winner for News Corp. In the second quarter of 2009, News Corp. took $680 million in impairment and other charges. Most of the charges had to do with its Fox Interactive Media group, which includes MySpace.

To be sure, Time Warner was the owner of AOL when it  bought Bebo. Analysts questioned at the time if AOL had overpaid for Bebo. Time Warner CEO Jeff Bewkes called Bebo the "riskiest acquisition" his company made in 2008.

One ghost from AOL's past -- founder Steve Case -- weighed in on the deal. In a Twitter post, he said, "AOL buying Bebo for $850 million and then selling two years later for $10 million doesn't seem like a winning strategy."

Case knows about disastrous deals. AOL acquired Time Warner for $164 billion in 2001. In 2002, what was then AOL Time Warner reported a $99 billion loss after writing off most of the  deal. The company changed its name to Time Warner in 2003. Case resigned from the Time Warner board in 2005.

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