Is AOL Finally Cheap Enough to Attract Private Equity Buy-out?

For a private equity firm that’s looking for the cheapest way to get online, AOL Inc. (AOL) is trading for 57 cents on the dollar.

The Internet pioneer spun off from Time Warner Inc. (TWX) in 2009 plunged to a record low last week after cutting this year’s profit forecast because of slowing growth in display advertising sales. With its market capitalization reduced to $1.3 billion from a peak of $3.1 billion last year, New York-based AOL is now the cheapest relative to its net assets of any U.S. Web company with a value of more than $500 million, according to data compiled by Bloomberg.

AOL has posted net losses of almost $800 million in less than two years as a standalone company as the profitable dial-up Internet business becomes obsolete and online advertising sales on websites from the Huffington Post to Moviefone fail to make money. With AOL trading at a 43 percent discount, the company may now attract private equity buyers that can still extract $1.5 billion in cash out of the access business within three years, according to B. Riley & Co.

“Private equity could look at the business,” Ken Sena, an analyst at Evercore Partners Inc. in New York, said in a telephone interview. They may “decide that the company is worth a lot more than its current price tag,” he said.

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The U.S. Securities and Exchange Commission (SEC ) is now looking into potential insider trading by Standard & Poor’s employees before the rating agency’s decision to downgrade the U.S.’s long-term debt, according to Financial Times.

“A Republican aide e-mails me: “The Speaker, Sen. Reid and Sen. McConnell all agreed on the general framework of a two-part plan. A short-term increase (with cuts greater than the increase), combined with a committee to find long-term savings before the rest of the increase would be considered. Sen. Reid took the bipartisan plan to the White House and the President said no.”

Read the rest here.

Click on the the chart to enlarge…

House Republicans are finishing work on a new proposal to resolve the standoff over the debt ceiling.  The proposal, set to be finished and crafted into the form of a bill by Sunday, will be in two parts.  The first will combine a short-term increase in the debt ceiling with spending cuts.  The second will lay the groundwork for a longer-term increase in the debt ceiling coupled with far-reaching deficit reduction.

“Senator Reid said on Friday that he is going to wait for us to move,” says a well-informed GOP House aide.  “So we’ll move.”  Another well-informed aide confirmed the basic outline of what’s happening.

Staff of the House Rules Committee is involved in the work, which is an indication that the process is nearing completion.  Before any bill can be considered on the House floor, the Rules Committee must first pass a rule setting out the process for its consideration.  Once the proposal is finished, it would likely be posted on the Rules Committee website, probably no later than Monday, so the committee could meet to consider it on Tuesday and it could be on the House floor by Wednesday.

“As I read the Constitution, the Congress writes the laws and you get to decide what you want to sign,” Boehner said, recounting what he told the president, according to two sources.

From Speaker Boehner:

In the end, we couldn’t connect. Not because of different personalities, but because of different visions for our country. The president is emphatic that taxes have to be raised. As a former small businessman, I know tax increases destroy jobs.

The president is adamant that we cannot make fundamental changes to our entitlement programs. As the father of two daughters, I know these programs won’t be there for their generation unless significant action is taken now.

Read the rest here.

Each year for the past two decades, the U.S. Census Bureau has reported that over 30 million Americans were living in “poverty.” In recent years, the Census has reported that one in seven Americans are poor. But what does it mean to be “poor” in America? How poor are America’s poor?

For most Americans, the word “poverty” suggests destitution: an inability to provide a family with nutritious food, clothing, and reasonable shelter. For example, the Poverty Pulse poll taken by the Catholic Campaign for Human Development asked the general public: “How would you describe being poor in the U.S.?” The overwhelming majority of responses focused on homelessness, hunger or not being able to eat properly, and not being able to meet basic needs.[1] That perception is bolstered by news stories about poverty that routinely feature homelessness and hunger.

Yet if poverty means lacking nutritious food, adequate warm housing, and clothing for a family, relatively few of the more than 30 million people identified as being “in poverty” by the Census Bureau could be characterized as poor.[2] While material hardship definitely exists in the United States, it is restricted in scope and severity. The average poor person, as defined by the government, has a living standard far higher than the public imagines.

• The typical poor household, as defined by the government, has a car and air conditioning, two color televisions, cable or satellite TV, a DVD player, and a VCR. If there are children, especially boys, the family has a game system, such as an Xbox or PlayStation.

• In the kitchen, the household has a refrigerator, an oven and stove, and a microwave. Other household conveniences include a clothes washer, clothes dryer, ceiling fans, a cordless phone, and a coffee maker.

• The home of the typical poor family is in good repair and is not overcrowded. In fact, the typical average poor American has more living space in his home than the average (non-poor) European has.

• By its own report, the typical poor family was not hungry, was able to obtain medical care when needed, and had sufficient funds during the past year to meet all essential needs.

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“According to police, Poole became enraged after his friend burned a chicken dinner. Poole allegedly grabbed a kitchen fillet knife and slashed the 20-year-old man’s face in three places.

The victim suffered one cut below one of his eyes and another above the lip. Naperville police Sgt. Nick Liberio said one of the slashes proved to be ‘a deep cut.'”

Read the rest here.

“I can tell you this: Democrats need a lot more tax revenue to make their long-term budget plans works. This is why Obama has not offered a long-term budget plan. The need for massive tax increases would then be clear to all. In private, liberal economists all talk about a need for a value-added tax to raise the additional revenue.

But a liberal think with close ties to the White House, the Center for American Progress, recently released a budget plan that goes out to 2035. It shows taxes as a share of the economy rising dramatically to nearly 24% of GDP vs. around 18-19 percent historically. And I am guessing they would go even higher if the table went beyond 2035. If Boehner and the Republicans don’t hold the line now on taxes, this is the American future.”

Read the rest, including the graphs, here.

“The White House dished out the spin that suddenly the Tea Party crowd had nixed a deal. In reality, the White House had upped the ante on taxes. A Republican House aide told me that the White House “started to backpedal on entitlement reforms too.” He explained, “They [the White House] had started to go back on some of the Medicare and Medicaid reforms they had previously said they were ok with.” In other words, either the White House never intended to present a viable grand bargain, or, if Obama did, the left got to him.”

….

On Friday he proclaimed: “And over the past few months, the economy has experienced some tough headwinds — from natural disasters, to spikes in gas prices, to state and local budget cuts that have cost tens of thousands of cops and firefighters and teachers their jobs.”

In the Rose Garden last summer he proclaimed: “And that’s why today we’re trying to pass a law that will save hundreds of thousands of additional jobs in the coming year. It will help states avoid laying off police officers, firefighters, nurses and first responders. And it will save the jobs of teachers like the ones who are standing with me today.”

In other words, Obama’s policies have flopped, and the flops now are supposed to justify more of the same.”

Read the rest here.

“Aides to Obama and Boehner were discussing revenue increases that would have been achieved in part by a streamlining of the tax code. Democrats were seeking $1 trillion in additional revenue, an increase that many rank-and-file Republicans appeared loath to support.”

Read the rest here.

By Paul Kane and and Lori Montgomery, Updated: Saturday, July 9, 8:41 PM

“House Speaker John A. Boehner abandoned efforts Saturday night to reach a comprehensive debt-reduction deal worth more than $4 trillion in savings, telling President Obama that a midsize package was the only politically possible alternative to avoid a first-ever default on the nation’s mounting national debt.

Boehner (R-Ohio) told Obama — who is hosting a key meeting Sunday evening on the debt issue — that their efforts to “go big,” as the speaker says, were stymied by the toughest issues: taxes and entitlements. Democrats continued to insist on tax reforms that would not pass muster in the conservative-dominated House, and Republicans wanted cuts to programs such as Medicare and Social Security that Obama and Senate Democrats would oppose.

“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase,” Boehner said in a statement released less than 24 hours before the Obama meeting is to take place.”

“Senate Democrats have drafted a sweeping debt-reduction plan that would slice $4 trillion from projected borrowing over the next decade without touching the expensive health and retirement programs targeted by President Obama.

Instead, Senate Democrats are proposing to stabilize borrowing through sharp cuts at the Pentagon and other government agencies, as well as $2 trillion in new taxes, primarily on families earning more than $1 million year, according to a copy of the plan obtained by The Washington Post.”

Read the rest here.

Go here to see it.

Paul Krugman writes (citing Noah Smith) that he agrees with the empirical findings in my critique of the revival of Keynesian activism in the 2000s (the stimulus packages of 2001, 2008 and 2009). In particular, he writes that “it’s far from clear that the ARRA actually led to much of a rise in government spending, while the tax cuts that made up much of the stimulus were probably largely saved.”

But he then goes on to say that the stimulus was too small. That’s not what I found in my paper. As I stated in the paper, my “results do not lend support to” the view “that the stimulus was too small.” Rather the paper showed that “a larger stimulus package—with the proportions going to state and local grants, federal purchases, and transfers to individual the same as in ARRA—would show little change in government purchases or consumption.”

Now, I know that Krugman is trying to distinguish between good and bad Keynesian stimulus packages, and that he would like a stimulus package with higher proportions going to federal, state, and local government purchases than the 2009 stimulus, or, for that matter, the 2008 stimulus or the 2001 stimulus. But experiences from the 1970s raise serious doubts about the political and operational feasibility of such discretionary fiscal policy. So do recent experiences in many other countries, as shown by Hyun Seung Oh and Ricardo Reis.

In a simple Keynesian model, all the government has to do to combat a recession is quickly increase government purchases, but the difficulty with doing so in practice is one of the classic arguments against discretionary fiscal policy. Of course, it is not the only argument. Small or unreliable multipliers, the legacy of increased debt, the unpredictability and temporariness of such policies are some of the other arguments. Using dynamic models with expectations and incentives, I have found very small multipliers (around .5)

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“Gov. Jerry Brown has signed into law California’s tax on Internet sales through affiliate advertising which will immediately cut small-business website revenue 20% to 30%, experts say.

The bill, AB 28X, takes effect immediately. The state Board of Equalization says the tax will raise $200 million a year, but critics claim it will raise nothing because online retailers will end their affiliate programs rather than collect the tax.

Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites. The letter says, in part:

(The bill) specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state.

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

Read the rest here.

As we near our Independence Day celebrations, it is a good time to reflect on what has made America exceptional.

The short video below illustrates the relationship between economic freedom and quality of life.

Economic Freedom and Quality of Life

HOPES OF a “Greek miracle” calmed investor nerves yesterday, and lifted the Irish index in line with its Continental counterparts.

Markets opened down, but they steadied after German chancellor Angela Merkel retreated from demands that bondholders should shoulder a substantial part of the cost of a Greek rescue.

Expectations of a “Greek miracle” grew after the chancellor’s meeting with French president Nicolas Sarkozy, and sparked a rally across European markets, a Dublin broker said.

Dr Merkel confirmed she would work with the ECB to resolve the Mediterranean nation’s sovereign-debt crisis. “We would like to have a participation of private creditors on a voluntary basis,” Dr Merkel told reporters in Berlin yesterday. “This should be worked out jointly with the ECB. There shouldn’t be any dispute with the ECB on this.”

Mr Sarkozy said a “breakthrough” had been made on the Greek debt crisis, following his meeting with Dr Merkel.

Read the rest here.