Explanation of the AOL deal

David Utter at WebProNews Search points out an interesting aspect of Google's deal with AOL. It may result in public trading in AOL again.

Google's AOL stock is structured as an investment, not in Time  Warner, but in a limited liability holding company described in an 8-K filing from Google as "HoldCo." Under the agreement, HoldCo owns all the outstanding AOL stock, and Google owns 5 percent of HoldCo. Beginning on July 1, 2008, Google has the right to require HoldCo to sell Google's shares in a public offering. We wonder if that will lead HoldCo to offer more shares to the public than just Google's portion.

Other terms of the agreement:

If Google exercises that option but Time Warner/HoldCo does not wish to do the public offering, then Time Warner will have to buy Google's stock back with cash or TimeWarner stock at a fair market price.

Can someone else (Microsoft) still come along and buy HoldCo? Sure.  If that happens, Google gets its share of the buying company in proportion to the amount of AOL stock it owns.

If HoldCo or AOL issue new stock, Google gets to buy more stock to keep its share at 5 percent.

Google keeps its right as the exclusive provider of text-based ads to AOL. Google structured the agreement to keep it from having any adverse affect on its revenues from AOL.

It has also agreed to give AOL credits to place text-based ads through Google. Some people have worried that means it will start giving AOL preferential treatment in ad placements, which would be a violation of Google's long-standing ad policy. But the agreement prevents that by requiring that the ads be "consistent with Google principles." So don't worry about it.

And, of course, they want to make IM compatible with Google Talk.

All in all, a good deal for Google.