Google closing in on AOL deal (updated)

Google and AOL are reportedly days away from inking a deal that may see Google …

Reports have surfaced that Google is close to winning the bidding war for AOL's love and affection. Time Warner has apparently entered into exclusive talks with Google, locking Microsoft out of the discussion (Yahoo dropped out in November).

As expected, the discussion is focusing on the company's advertising and search needs, but new reports indicate that the deal will also include the transfer of assetts between the two companies. When talks first were reported months ago, there was speculation that either Microsoft or Google would try to bite into the company's Internet stake, both apparently viewing AOL as a prime Internet destination (which, believe it or not, it is). Hedge-fund investor Carl Icahn, however, has been actively threatening AOL/Time Warner with legal action were it to sell a portion of its stock to a third party for a less than ideal price. Icahn is primarily concerned with keeping AOL primed for a spin-off, or a total sale.

It now looks as though Google will be paying US$1 billion for a 5 percent stake in AOL. The BBC reports that the purchase of equity should lift investor's confidence in AOL, especially given the high profile of Google.

The deal would also secure a decent slice of Google's revenue pie, as 11% of the company's total revenue in the first half of this year stemmed from AOL-related advertising. Microsoft and Yahoo were understandably interested in taking that business away from the company and dropping it into their own pockets. The deal was seen as being particularly important for Microsoft, who is just starting to get its own search-related advertising service, dubbed AdCenter, underway. Less than two weeks ago it briefly looked as though Microsoft was going to pull off the upset, but it appears as though cross promotional interests may have won the day.

The deal will be a two-way street. Google will get to provide AOL's search service, but AOL will be allowed to directly sell advertising in the search results that are provided for AOL by Google. Additionally, Google will reportedly also use its advertising on its main site to promote AOL properties. For AOL, this is a win-win situation. Not only do they get to tap into Google's ad program, but they also get promotion from the world's number one search engine. The latter is something that Microsoft would have had difficultly delivering.

The deal, if it pans out, will be approved after next Wednesday's Board of Director's meeting at AOL.

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