Two years after dropping $850 million on Bebo, might AOL be better off just scrapping the social network? That's what some
corporate
tax experts are saying.
"Complicated corporate tax rules will let Aol write off the full purchase price of Bebo if they declare it worthless and abandon the asset," it
writes. "With Aol's effective tax rate of around 45%, that's $380 million and change in their pocket in taxes that they'd be able to avoid."
Granted, the UK-based site has fallen
from 22 million monthly unique visitors when it was acquired in March 2008 to 14.6 million, today, according to comScore. But, couldn't AOL find some socially aspiring media company willing to nurture
the network back to life?
Probably, say the experts, but it wouldn't be in AOL's best interests. "A sale of Bebo would almost certainly be less attractive," they tell 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."
"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," says Bryan Smith, a partner at Perkins Coie.
"Crazy huh?" says Andy Beal
on his Marketing Pilgrim blog. "You buy something for $850 million, but can't even hold a fire sale ... It's actually better to just set it on fire and let it burn!"
Beal, for his part, was already speculating that the
social network had slipped from its valuation high of $1.5 billion upon the acquisition in 2008 -- and he's got the link to prove it.
Read the whole story at TechCrunch et al. »