In April we speculated that AOL (TWC) might be close to shedding its legacy ISP access business. We pegged the most likely acquirer as Earthlink (ELNK). In an earnings conference call this week, Earthlink CEO Rolla Huff echoed that sentiment, stating that he was bullish about combining its business with the AOL division.
Of course, interest from one party does not a deal make. But, given AOL’s burning desire to shed this dinosaur and completely rid itself of its ancient and tumultuous past, it is safe to assume that if the two parties can agree on terms, a deal might just materialize. The real question is how struggling Earthlink can come up with the estimated $1.5bn-$2.5bn it would take to acquire the AOL unit and its roughly nine million subscribers. Since Earthlink is one of few companies able and willing to make that acquisition, AOL does not exactly hold a lot of bargaining power. We think Earthlink might just get this at a bargain basement valuation closer to $1.5bn, just two times AOL’s cash flow from its ISP division.