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Shareholder bars AOL deal

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CIOL Bureau
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By Patrick Lannin and Jeffrey Goldfarb

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STOCKHOLM/LONDON: AOL, the Internet unit of Time Warner Inc., said on Monday it had agreed to buy Swedish online marketing firm TradeDoubler for about $900 million to enhance its advertising capabilities in Europe.

But the cash deal, which was recommended by the TradeDoubler board, ran into quick trouble as a major shareholder said it would vote against the transaction, and other investors signalled they would need a sweetener before approving it.

The deal is the first major strategic move for AOL under Randy Falco, who was hired as AOL's chief executive last November from NBC Universal to help turn the business around.

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It follows AOL's sale of its European Internet access businesses as the company shifts to an advertising-based model instead of one reliant on subscribers. AOL has retained its portal business in Europe.

AOL offered 215 crowns a share for TradeDoubler -- an 8.6 percent premium to Friday's close and 20 percent higher than their three-month moving average. The deal is aimed at complementing AOL's Advertising.com business, purchased in 2004.

Investors representing about 20 percent of TradeDoubler's shares, including the company's largest holder, Arctic Ventures, have said they will accept the offer.

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But Swedish pension group Alecta, which said it owns 10.01 percent of TradeDoubler, rejected the bid, saying it undervalued the company.

AOL said the deal's closing was conditional on 90 percent of TradeDoubler shares accepting the offer.

Shares in TradeDoubler, founded in 1999 and listed in 2005, were trading 14.7 percent higher at 1250 GMT at 227 crowns -- over the agreed deal price -- pointing to hopes of a rival offer or the need for a sweetener from AOL.

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"Although the bid level equals our target price of SEK 215, our initial take is that there is a strong possibility of a competing bid or that AOL will need to raise its offer," SEB Enskilda analysts wrote in a note.

AOL declined to comment on the shareholder opposition and any possible effect on its bid.

REJECTION

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TradeDoubler Chairman Kjell Duveblad also refused to comment on the rebuff by Alecta but said the threshold set by AOL means "they can't complete it with the intentions they have now".

SEB Enskilda said that AOL valued TradeDoubler, whose clients include Dell, Apple and Tiscali, at about 27 times future earnings but rivals trade at around 30 times.

"Although the bid multiples are not conservative, TradeDoubler has a unique leading position in the hot European affiliate market, especially as growth is slowing down in the U.S. and synergies are not fully disclosed in the bid," the broker wrote.

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Kaupthing analyst Mikael Laseen agreed that the bid may undervalue TradeDoubler.

"In light of the firm's positive earnings outlook and that there are probably significant synergies between AOL and TradeDoubler, the bid premium is rather small," Laseen said. "I think one could expect more than 215 crowns."

Time Warner Chief Operating Officer Jeff Bewkes said the deal offered an attractive premium to TradeDoubler shareholders and would prove a key strategic move for AOL.

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"With AOL and Advertising.com, we have built a robust online advertising business in Europe, and TradeDoubler will help us accelerate the growth of this business," he said in a statement.

Time Warner and AOL were advised by Morgan Stanley.

(Additional reporting by Eva Odefalk and Simon Johnson)

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