The online news and opinion site, the Huffington Post, founded by Arianna Huffigton in 2005 on a shoestring budget, has been sold to AOL for $315 million ($300 mn in cash and $15 mn in shares).
Huffington and Armstrong went public with the deal at the Super Bowl in Dallas on Sunday night, in a video interview with the Wall Street Journal's technology journalist Kara Swisher.
The creation of this new media giant will be sure to stun established news groups still struggling to come to terms with the unchartered territory that is online news.
AOL claimed that the new operation will have a combined base of 117mn unique visitors a month in the US and 270 mn around the world.
Under the terms of the deal, Huffington will be given a new role as president and editor in chief of a unit to be named Huffington Post Media Group, and includes management of AOL's sprawling news operations and other media enterprises such as TechCrunch and MapQuest.
"This is the most exciting thing Post Media I have ever done," Huffington said after the deal was first announced.
"Together, our companies will embrace the digital future and become a digital destination that delivers unmatched experiences for both consumers and advertisers," said Tim Armstrong, the chairman and chief executive of AOL.
It also represents a huge gamble by AOL, which was once the US's dominant internet service provider in the initial dotcom boom of the 1990s but suffered as a result of a merger with Time-Warner in 2000 that was eventually unwound in 2009.
The sale offers the opportunity for the Huffington Post, which began as a small liberal blog but now draws 25mn visitors every month, to reach new audiences. For AOL, who have been looking for ways to generate revenue as its dial-up internet access business declines, the deal brings the potential to earn millions of dollars through advertising.
The New York Times reported that Huffington Post executives estimate that the site will generate $60m in revenue this year, compared with $31m in 2010.
Huffington and Tim Armstrong, the chairman and chief executive of AOL, have dubbed the takeover an equation of "1+1 equals 11".
However, memories of AOL's last big merger, the Time-Warner collaboration of 2000, hang over the deal.
AOL's co-founder Steve Case tweeted in the early hours of Monday morning, "AOL to Buy Huffington Post; Tim Armstrong says "1 + 1 will equal 11" Really? That wasn't my experience."