AOL sells Bebo for 'meaningful tax deduction'

Criterion pays less than $10 million for social networking site purchased by AOL for $850 million

AOL has sold social networking site Bebo, the one it bought two years ago, to Criterion Capital Partners for less than $10 million.

Criterion, a Los Angeles-based private equity fund, will "assume the rights and complete operating control over the global social platform business," which will remain based in San Francisco.

The sale is extra notable due to the fact that AOL originally bought Bebo for $850 million, nearly a hundredfold what the company is now earning from the sale of the social site.

The original Bebo acquisition was supposed to invigorate AOL with a big boost of social media, but the fast rise of other networking sites, especially Facebook and MySpace, quickly cast Bebo into the shadows. According to Criterion, however, the lesser-used social site still has a strong user base, mostly youth-centric, across the globe.

Bebo's worldwide unique visitors numbered about 12.6 million in April, a more than 50% drop from the year before. Meanwhile, Facebook and Myspace are pushing 500+ million and 100+ million unique visitors, respectively.

AOL did not entirely lose on the sale of Bebo, however. In a note sent to employees, CEO Tim Armstrong reveals what the company really earns from the sale:

"Criterion Capital Partners are specialists in facilitating growth plans and turnarounds and are well placed to drive Bebo’s effort to strengthen its foothold within the highly competitive social networking arena. For AOL, the transaction will also create a meaningful tax deduction, which should allow us to more effectively manage our tax strategy."

The common stock of Bebo will be treated as “worthless” for tax purposes. According to a Thursday filing, AOL expects a tax benefit this quarter of $275 million to $325 million, though the final figure will be subject to review by the IRS.