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Aug 4, 2008

The Value of Near Death Businesses like Newspaper and Dial-up

Ed: I'm helping a friend to buy a mature, cashflow business that is past it's peak; and will be worthless in 5 or more years. Like the AOL dial-up and newspaper businesses, both are mature, cashflow positive, but on a decline to certain death. 

What is the value of a declining business? Of course, the seller emphasizes the goodwill of the brand. It's no fun to penny pinch costs for ten years just to milk cashflows. Is the true value the stepping stone of business relationships to build a new business?

Time Warner Ready To Unload AOL In Pieces. But At What Price?

Time Warner is moving forward with its plans to sell off AOL in pieces, and is finally ready to formally separate the AOL portal and advertising business from its legacy dial-up access business. But how much can it hope to get for these parts? When Google invested $1 billion in AOL a few years ago for a 5 percent stake, that valued AOL at $20 billion (which some people thought was an inflated figure even back then). Today, even after breaking it up, Time Warner will be lucky to get more than $7 billion for the whole lot.

Although it wants $10 billion for just the advertising and content business, there are only two serious potential buyers: Yahoo and Microsoft. And Time Warner is not making any friends at Yahoo by interfering with the selection of one of its new board members. If Microsoft turns out to be the only bidder, it would have no reason to offer much more than the $4 billion that the market is valuing the business at today. And, of course, all bets are off if Microsoft ends up buying Yahoo instead. (The dial-up business also only has one serious buyer: Earthlink)...

Newspaper Slide: Even Worse Than We Thought?

newsies.jpgConventional wisdom on newspapers: Even though they're in steep decline, they're still useful cash-generators -- for owners who aren't choking on debt and who aren't expecting preposterous returns. But newspaper observer Alan Mutter, taking stock of two proposed sales, says things may be changing. Even owners who don't have to sell now want to dump their assets...

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