Google-AOL Deal Could Force IPO

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Google Inc. will have the right to force a initial public offering of America Online Inc. begining in July 2008 as part of its $1 billion investment in the Internet-service provider, according to documents filed with the Securities and Exchange Commission.

Google agreed on Dec. 20 to pay $1 billion for a 5% equity stake in AOL. As part of that deal, Google and AOL will continue to provide search technology to AOL’s Internet properties worldwide. In addition the agreement will expand display advertising throughout the Google network and create an AOL Marketplace, enabling AOL to sell search advertising directly to advertisers on AOL-owned properties. Google also agreed to collaborate with AOL on video search and to showcase AOL’s premium video service within Google Video.

In an SEC filing Dec. 23, AOL parent Time Warner Inc. revealed that begining on July 1, 2008, Google will have certain rights to require the registration of AOL shares in a public offering. If Google exercises those rights, Time Warner has the option of purchasing Google’s interest either in cash or in Time Warner shares – based on an appraisal of the fair market value of AOL – instead of initiating an IPO.

That Google paid $1 billion for a 5% equity slice of AOL implies a current valuation of the online giant of about $20 billion.

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