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Last updated on April 18, 2014 at 17:24 EDT

AOL Buys UK Social Network Bebo

March 13, 2008

AOL said Thursday it will pay $850 million to acquire the online hangout Bebo, giving the struggling Internet company a foothold in an expanding business.

Bebo is one of the largest social networks in Britain, is ranked No. 1 in Ireland and New Zealand and has a global membership of more than 40 million, according to AOL. In the United States, however, it ranks third behind MySpace and Facebook.

Ron Grant, AOL’s president and chief operating officer, said the deal should help AOL expand internationally and Bebo grow in the United States. The all-cash deal, expected to close in a month, also should give AOL an engaged audience from which it can generate additional advertising revenue.

AOL has been looking for ways to boost its advertising revenue to offset steep declines in dial-up Internet subscriptions. After several quarters of strong growth, AOL’s advertising expansion has been slowing, putting pressure on the company’s parent, Time Warner Inc. (TWX) (TWX), to sell off the Internet unit.

The deal is an acknowledgment that AOL still needs to seek additional outlets for expanding its audience and its advertising opportunities. But it also underscores the growing value of social networks such as Bebo to media companies as potential gold mines for online advertising dollars.

News Corp. (NWS) bought MySpace for $580 million in 2005, but has estimated the network is now worth more than $15 billion. News Corp. also owns the Fox television and movie studios in addition to its newspaper and Internet holdings.

Facebook Inc., which owns the Internet’s second-largest social network behind MySpace, now arguably has a $15 billion market value, based on Microsoft’s purchase late last year of a 1.6 percent stake for $240 million.

“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media,” said Randy Falco, chairman and chief executive of AOL.

AOL said current Bebo president Joanna Shields will continue to run the company, reporting to AOL President and Chief Operating Officer Ron Grant.

The acquisition is part of AOL’s shift from a subscription-driven business to a public Web site that generates income from building traffic and selling advertising, similar to rivals Yahoo Inc. (YHOO) and Microsoft Corp. (MSFT)’s MSN. AOL, which has launched 17 international Web sites over the last year and expects to expand to 30 countries outside the U.S. by the end of 2008, said Bebo plans to launch in five countries this year, and will be “featured prominently” in AOL’s international expansion efforts after the deal is closed.

Bebo has about 100 employees operating in offices in the U.K., San Francisco and Austin, Texas.

AOL was advised by Banc of America Securities LLC and Deutsche Bank Securities Inc. Bebo was advised by Allen & Co.

On the Net:

www.bebo.com