Posted December 21, 2005 9:00 am by with 0 comments

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Take a look at BusinessWeek’s fascinating summary of the events that led up to the Google/AOL deal.

It’s interesting to note that while billionaire Time Warner investor Carl Icahn is calling the Google deal a bad thing for those looking to see AOL broken-up and sold, he was the one pushing for the deal instead of one with Microsoft.

Microsoft and Time Warner had been discussing a joint venture that would have tethered the companies’ fortunes more deeply. Had that deal gone through, it would have been harder to peel AOL away from its parent. Icahn was pushing Time Warner in the direction of Google, according to a person close to the discussions. By the morning of Dec. 16, Time Warner execs notified their Microsoft counterparts that they were entering exclusive talks with Google.

It also looks like everyone at Time Warner wanted an immediate “money now” solution in favor of a long-term strategy.

Microsoft’s deal would have made AOL a full partner in search-ad revenue. And considering the companies’ combined scale, it likely would have been very lucrative. But there wasn’t a short-term benefit. Microsoft wasn’t offering an equity investment, either. That’s why Icahn pushed hard for another deal. “At the end of the day, it was a question of who was making the decisions,” an exec close to the talks explains.

Partnering with Google was the lesser of two evils. Sure, it involved Google buying 5% in AOL, but at the same time, the deal would make it easier for AOL to be sold off – at least easier than if the company had partnered with Microsoft.

Still, it seems Icahn is determined to see the breakup of AOL.

Icahn believes that a breakup serves the longer-term interests of the businesses. The pieces might generate more value as part of another organization. The assets have plenty of potential buyers. Yahoo is believed to have submitted an offer to buy all of AOL, which was rejected. GE (GE) or Universal might make a good buyer for Warner Studios.

Among all of the hoopla surrounding the deal, it appears few are focusing on what I believe is the most interesting angle of the entire story. Google’s recently raised war-chest was not designed to allow the company to acquire additional companies, but in fact, put it in a position to test a new partnership strategy. Offer to buy a stake in your potential partner’s company.

It’s brilliant! Not only does it sweeten any deal that Google puts on the table, but it’s also a poison pill to prevent anyone else coming in a supplanting them in the future. With Google owning 5% of AOL, it will be far more difficult for Yahoo or Universal to come in and buy the company. I would not be surprised to see Google use this strategy with future partnership deals.