Today was the first full business day after the news of the Google AOL deal broke and reactions varied.
Predictably, Carl Icahn was not amused:
Time Warner will do the deal at the displeasure of 3% shareholder Carl Icahn, who has engaged Lazard to look at strategic alternatives for the large media company and propose an alternate slate of directors in time for its annual meeting next spring.
In an open letter to the Time Warner board released Monday, Icahn wrote: “I am not opposed to Time Warner entering into an AOL transaction that creates long-term value. However, I am deeply concerned that the Time Warner board may be on the verge of making a disastrous decision concerning an agreement with Google if this agreement would make it more difficult in any way or effectively preclude a merger or other type of transaction with companies such as IAC/InterActive (IACI:Nasdaq), eBay (EBAY:NYSE), Yahoo! (YHOO:Nasdaq), or Microsoft (MSFT:Nasdaq) etc., etc. …”
Icahn said that while he believes there are major opportunities to enhance value at Time Warner with future combinations, such transactions “might not be achievable if Time Warner enters into such a long-term relationship” and later questions whether Google is the best partner for unlocking the value of the AOL asset.
“On the eve of a proxy contest, I believe it would be a blatant breach of fiduciary duty to enter into an agreement with Google that would either foreclose the possibility of entering into a transaction that would be more beneficial for Time Warner shareholders or make such a transaction more difficult to achieve,” Icahn wrote.
The full text of the Icahn letter is here. On the other hand, investors seemed pleased as the stock hit a 52 week high and Google’s Market Value Surges Past That of IBM as Shares Rise, although it ended the day with a loss. The Wall Street reaction seemed positive too:
Wall Street analysts approved of the deal. Merrill Lynch analyst Lauren Rich Fine left her rating on the stock at Peer Perform, and wrote that it would be a wise move given the fact that AOL is Google’s largest customer, accounting for an estimated $600 million, or 10 percent, of 2005 revenue.
Bear Stearns analyst Robert Peck not only liked the AOL deal, he also speculated Google could be on the verge of entering the hardware space, with some sort of “Google Cube,” a small box with various wireless ports, which could be used to connect a personal computer, stereo, or personal video recorder.
“In fact, Google could over time become more of a hardware company than anything else,” Peck wrote in a research note.
The last part casts rather a pall over Mr. Peck’s analysis, but you get the idea. However, there were also more of those pesky voices of doubt I mentioned over the weekend (, ) saying that perhaps Google gave up too much credibility in order to do the deal.
Preston Gralla at Networking Pipeline – Has Google Become More “Evil” Than Microsoft?:
Up until now, Google has very clearly separated advertising from non-ad content. That’s been one of the reasons for its success — people have thought the site’s searches were not for sale. But no longer.
Internet search is a rough-and-tumble business, and niceties aren’t always observed. But Google has crossed the line here, and the AOL deal makes clear it should finally give up its “do-no-evil” charade.
Alyce Lomax at The Motley Fool – Google Falls for AOL?
However, chatting with my Foolish colleague Seth Jayson did bring up an interesting point related to Google’s well-known mission statement: “Don’t be evil.” That won’t get any easier as the company and its stock price continue to expand. Given the preferential treatment it will now provide AOL, it’s not hard to imagine that Google’s do-no-wrong reputation may quickly start to tarnish — especially in such close association with AOL, which has committed a few previous blunders that arguably alienated some of its users.
It’s a strange turn of events between these two companies, and while the short-term logic behind their expected agreement is clear, the far-reaching ramifications may not be. Google’s share price hit a new 52-week high in Monday’s trading (what else is new?), but personally, I see many reasons for Google fans — and shareholders — to feel uneasy as this agreement speeds closer to reality.
The next step is presumably Wednesday’s (some news reports say Tuesday – ed.) Time Warner board meeting, followed by a public release of the details.
Update: Paul Thurrott – AOHell: Google Sells Soul to Stop Microsoft:
The deal, which was done solely to hurt Microsoft, will not financially benefit Google in any perceptible way. But as part of the deal, Google will do that one thing they’ve always promised not to do: It will present AOL-sponsored search results on its main search results page, complete with the AOL logo. That’s right, folks. Google has sold out. And it did so to harm a competitor that has less than one third its marketshare.