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Street Reacts: AOL Unlikely To See Alternative Bidder

Street Reacts: AOL Unlikely To See Alternative Bidder

Verizon Communications Inc. (NYSE: VZ) on Tuesday bid $50 per share in cash for AOL, Inc. (NYSE: AOL), causing AOL to close the day at $50.52, up 18.6 percent.

Wall Street analysts expect that this deal will close, and that no alternative bidders will emerge to push the price higher. Both Deutsche Bank and Credit Suisse changed their price targets to $50, while Goldman Sachs upped its price target to just $44.

Analysts at Deutsche Bank said that the deal is a "win – win," and that it demonstrated that AOL CEO Tim Armstrong is a "money maker." The analysts said the potential for other bids is "limited," a sentiment echoed by Credit Suisse that said there is a "low likelihood of an alternative bidder."

Deutsche Bank also said the acquisition is a "low-risk transaction" for Verizon that will also offer it "new capabilities." Highlighted in that is strong and stable cash flows and a couple "good assets buried under the hood." In their note, analysts at Axiom said those buried assets include MapQuest.

Related Link: Will Verizon-AOL Merger Help The Carrier's Lobbying Against Net Neutrality?

Goldman has been flat-footed on AOL thus far this year. Prior to the Verizon bid, the analysts had AOL on its "Americas Sell List," during which the stock increased 27 percent. In Tuesday's research note, the analysts removed AOL from the list and upgraded the stock to Neutral. In total, Goldman puts the likelihood of a deal in its top category, but still incorporates the fundamental valuation of $35 into its model. That dragged the $50 price target lower to $44.

Verizon fell 0.4 percent Tuesday on the news, though the price seems to be recovering those losses in pre-market trading. The stock has gained more than 6 percent this year, more than tripling the return of the S&P 500.

Including Tuesday's gain, AOL is up 9.5 percent year-to-date.

Latest Ratings for VZ

Nov 2019DowngradesBuyHold
Nov 2019DowngradesBuyNeutral
Oct 2019Initiates Coverage OnMarket Perform

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