Last December, there was one thing that Verizon Communications Inc. Chief Executive Lowell McAdam was clear about in his ongoing discussions with AOL chief Tim Armstrong: Verizon had no interest in buying AOL.  In fact, six weeks later, Mr. McAdam reiterated that position.  Yet five months later, Verizon agreed to purchase AOL for $4.4 billion. Why did Verizon change its tune? It’s possible the telecom giant’s strategic priorities changed as its mobile video plans came into sharper focus.  Or perhaps the company knew it had competition from other suitors. AOL had talks with three other parties, and also mulled a plan to spin off part of its business, even as its talks with Verizon progressed, according to a regulatory filing AOL submitted Tuesday.  During the talks between the two companies, Verizon officials emphasized the importance of getting Mr. Armstrong to stick around after the merger. The deal was nearly held up because terms of his employment agreement weren’t ironed out, the filing says.  The AOL executive wound up getting a handsome retention package on top of the nearly $180 million he will collect from the sale of his shares and options that he will be able to exercise a year after the merger closes.  The filing says Mr. Armstrong will be granted “founder’s incentive award” in the form of restricted stock units worth 1.5% of AOL’s market capitalization at the time the deal is consummated. Currently, AOL’s market value is about $4 billion. Those stock awards fully vest in four years — giving Mr. Armstrong a strong incentive to remain at Verizon.  AOL and Verizon began talking as far back as last June, according to the regulatory filing. But initially, the conversations focused on a potential strategic partnership between the two firms or a possible joint venture.  The companies explored how they might help each other protect against risks in their respective markets. In December, as the discussions progressed, Verizon particularly focused on AOL’s “platforms” business, according to the securities filing–meaning that Verizon was mostly interested in tapping into AOL’s advertising technology.  At the same time, AOL began to explore whether it should spin off either its platforms business (the group focused on helping other companies sell Web ads) or its brands business (properties like TechCrunch and The Huffington Post). Plus, AOL “held a preliminary discussion with a third party” regarding a potential sale.  By late January, AOL and its board came to the conclusion that a spinoff “would not be feasible.” But a partnership with Verizon was considered increasingly attractive. On Feb. 4, a high level term sheet laying out a joint venture was drawn up.  A few weeks later, things got more interesting, as another unnamed company contacted AOL “and expressed interest in receiving information with respect to the Company’s platforms and brands businesses,” the document says.  Then in March, even as the talks regarding a joint venture with Verizon progressed further, a private equity firm reached out to AOL to discuss buying a certain AOL asset (the SEC filing doesn’t say which).  By March 25, Mr. McAdam and his representatives reached out to AOL and Mr. Armstrong about Verizon potentially taking on a majority stake in AOL. Then on April 8 “Mr. McAdam raised the possibility of a 100% acquisition of the Company with Mr. Armstrong,” the document says.  AOL was looking for a per-share price “in the 50s” while Verizon was prepared to a deal “in the high 40s,” reads the filing.  On May 8, AOL announced its first quarter earnings, topping Wall Street expectations. That day, Verizon offered AOL a deal at $47 per share. AOL pushed for higher and the companies agreed on a $50-per-share deal. By May 12, the deal was announced.  ______________________________________________________ For the latest media, marketing and advertising news, follow us on Twitter: follow @wsjCMO Subscribe to our morning newsletter, delivered straight to your inbox.
AOL and Verizon started talking to each other last June about a potential partnership. But Verizon was clear--it was not interested in acquiring AOL. That was before AOL started talking about spinning off several properties, and started hearing interest from other suitorsBy March, Verizon suddenly became very interested in aquiring AOL outright. Though there was one sticking point--keeping AOL chief executive Tim Armstrong on board, new SEC documents reveal.