AOL's £200m Huffington deal sparks talk of bubble

The deal will give co-founder Arianna Huffington, the American-Greek editor-in-chief, a huge but undisclosed windfall. AOL is paying $300 million (£186 million) in cash and $15 million in shares.
AOL chief executive Tim Armstrong agreed final terms with Huffington at last night's Super Bowl final in Dallas.

Armstrong and Huffington hailed the deal, saying: "1+1 equals 11."

Huffington, who made her name in Britain in the 1970s as a colourful president of the Union debating society at Cambridge University, will stay on as editor-in-chief of the site, which has 25 million monthly users.

Armstrong said: "The acquisition of The Huffington Post will create a next-generation American media company with global reach that combines content, community and social experiences for consumers."

Since joining from Google in 2009, Armstrong has bought online and video companies such as the technology website TechCrunch to boost AOL's credentials as a destination for news and content. AOL said its combined websites would now reach 270 million users a month worldwide.

Huffington and co-founder Kenneth Lerer are said to be the largest shareholders in Huffington Post. Venture capital firms Softbank invested $5 million in 2006 and Oak Investment Partners $25 million in 2008.

While the Huffington Post is not well known in Britain, it has proved popular and influential in America, particularly during the 2008 Presidential election, where it has a liberal reputation.

Dominic Buch, analyst at Numis Securities, said: "There is some scepticism in the market as to whether anyone is going to be able to make money from news online. But someone like AOL buying Huffington Post and Rupert Murdoch launching the Daily on iPad last week says that consumer media has a future online."

Some analysts have been talking about a new internet bubble with Facebook being valued at $50 billion and group discount website Groupon given a putative valuation of $15 billion.

AOL has had a chequered record since it shot to prominence in the 1990s as internet service and email provider America Online. Its merger with media giant Time Warner in 2000 was widely considered one of the worst deals in corporate history. They split in 2009.

AOL's purchase of social networking website Bebo for $850 million in 2008 was also ill timed and it was sold last year for a fraction of the price. Former AOL chief executive Steve Case, who oversaw the 2000 merger, wrote on Twitter: "Tim Armstrong says '1+1 will equal 11'. Really? That wasn't my experience."