Writing Down Bebo
AOL on Thursday confirmed selling Bebo to private investment firm Criterion Capital Partners, but reported sale numbers make the deal hardly worth celebrating. Indeed, Criterion originally offered to pay just $2.5 million for Bebo, Thomson Reuters' PEHub blog reported Thursday, citing an unnamed source. "AOL told them to bulk it up a bit, and my source says he would be surprised if it got above $5 million."
Citing a person familiar with the matter, Bloomberg/Businessweek reported Thursday that AOL got less than $10 million for Bebo -- or less than 2% of the $850 million it paid for the site two years ago.
Under the watch of then-parent Time Warner, AOL acquired the UK-based social network back in March 2008. The site has since fallen from 22 million monthly unique visitors to roughly 14 million today, according to comScore.
Despite its sagging number, however, industry watchers say CCP made out like a bandit. "It's hard to say [what] Bebo was really worth, but at $10M it's a steal considering the volume of traffic the site receives per month," said Jeff Tinsley, CEO of online people finder Mylife.com.
Even before rumors of a sale surfaced in April, corporate tax experts were saying publicly how AOL would be better off dumping Bebo for tax purposes. Confirming their hypotheses, AOL said Thursday that the sale would afford the company significant tax benefits. "The transaction will also create a meaningful tax deduction, which should allow us to more effectively manage our tax strategy," the company said.
In April, AOL said it was considering selling or "shutting down" Bebo. The decision followed the conclusion reached by several corporate tax experts to the effect that AOL was better off just scrapping Bebo.
"Without getting into any specific facts or companies, it will often be more attractive for a U.S. corporation to simply shut down a subsidiary and claim a deduction for the worthlessness of the stock against ordinary income instead of selling the stock at a distressed price and taking a capital loss, which may only offset capital gains," Bryan Smith, a partner at Perkins Coie, told TechCrunch.
"A sale of Bebo would almost certainly be less attractive," another tax expert, who did not wish to be named, told TechCrunch. "If someone were to pay them $100 million for the service, which is optimistic, AOL could still offset the remaining $750 million as a tax loss ... But it could only apply against long-term capital gains, and AOL doesn't have any to offset against ... They'd have to carry that loss forward and hope for future gains to offset it against."