Online media and services powerhouse America Online Inc. (AOL) and German publishing giant Bertelsmann AG have agreed to a four-year strategic alliance valued at $US250 million that will lead to the sale of Bertelsmann's interests in AOL Europe GmbH and AOL Australia to AOL, the companies announced on Friday.
Bertelsmann and AOL have put in place mechanisms for the future sale to take place after January 31, 2002, for between $6.75 billion to $8.25 billion, AOL Chairman and Chief Executive Officer Steve Case said in a telephone press conference.
"We concluded that this approach would be most advantageous to AOL worldwide," Case said when asked why the companies are waiting almost two years to complete the sale.
Bertelsmann Chairman and CEO Thomas Middelhoff said the delay in the sale of AOL Europe and AOL Australia would give Bertelsmann more flexibility as it strengthens its e-commerce operations. Bertelsmann's current holdings in the AOL properties, "does not directly support our goal of becoming the world's largest provider of online content," Middelhoff said.
Under the terms of the alliance, Bertelsmann will provide AOL with media content and e-commerce for worldwide distribution over AOL's various channels. Specifically, Bertelsmann's e-commerce content will be distributed over AOL, CompuServe and Netscape Online interactive services, AOL Instant Messenger, ICQ, AOL.COM, Digital City, Spinner and Winamp, Case said.
Bertelsmann will in turn call AOL, CompuServe and Netscape Online its "Preferred Interactive Services," Middelhoff said.
As part of the agreement, Bertelsmann will make an up-front payment of $70 million to AOL, Middelhoff said. "I believe we have to pay that by next week," Middelhoff added.
AOL will immediately take over Bertelsmann's interest in day-to-day operations of AOL Australia, said AOL Chief Operating Officer Bob Pittman. The agreement allows AOL to strengthen its working relationship with the local management teams at AOL Europe, Pittman added.
AOL Europe "will continue to be thought of as an independent entity," Case said.
AOL Europe's current President and Chief Executive Officer Andreas Schmidt will make way for Michael Lynton, the president of AOL International, who is to become acting CEO of AOL Europe, Case said.
"Andreas will work with Michael over the coming months before returning to Bertelsmann," Case said.
Though the sale of Bertelsmann's stake in AOL Europe had been expected since Middelhoff resigned from AOL's board of directors in January after AOL and Time Warner announced their merger Middelhoff insisted that the sale had nothing to do with the AOL and Time Warner deal.
"It is not right to assume this would be a reaction to the AOL Time Warner merger," Middelhoff said.
"Discussions with Bertelsmann did start last year and really happened before we had serious discussions with Time Warner," Case added.
Under the partnership agreement, Bertelsmann's "preferred" relationship with AOL will not hamper Bertelsmann's ability to sell its content to other parties, Middelhoff said.
AOL and Bertelsmann have had a 50-50 joint venture in AOL Europe and AOL Australia. AOL Europe says it has 3 million members in nine countries, and includes the brands AOL and CompuServe, as well as the recently launched Netscape Online service in the UK.
Bertelsmann at one time had a roughly 5 percent share in AOL, but has reduced that more recently to less than 1 percent, Bertelsmann spokesman Marcus Payer said in a telephone interview in early January.