Time Warner on Wednesday confirmed that discussions are under way to sell a stake in the internet business America Online (AOL) to an outside investor. The media conglomerate also announced that it will more than double a planned share buyback to $12,5-billion, in an attempt to defuse a shareholder rebellion led by veteran corporate raider Carl Icahn.
In a conference call to present third-quarter results, chief executive Richard Parsons described the AOL talks as ”exploratory discussions”. He said a number of parties are involved, some of which have been identified in the press. The United States media have named Google, Yahoo!, Comcast and Microsoft as potential suitors.
He cautioned that the discussions are fluid and might not result in a transaction. They are part of an effort to reinvent AOL as a free broadband internet portal, to capitalise on the rapid growth of online advertising.
During the third quarter, AOL’s revenue fell by 5% to $2-billion, as a 28% gain in advertising was outweighed by the loss of 678 000 subscribers at its core dial-up subscription service. It ended the quarter with 20,1-million US subscribers, down from 26,7-million three years ago, showing how narrowband is withering.
The company reported third-quarter profits of $897-million at group level, up from $499-million a year earlier. Revenues were 6% higher at $10,5-billion. Time Warner’s other businesses include television networks CNN and HBO, the Warner Brothers studio — which benefited from the success of Batman Begins and Charlie and the Chocolate Factory — Time magazine and IPC.
The decision to increase the share buyback from $5-billion to $12,5-billion yields in part to the demands of Icahn. He and his allies have built a 2,8% stake in Time Warner and pressed for more urgent action to lift the company’s share price.
They had called for a $20-billion buyback and it was not immediately clear whether the increase was enough to sate their demands.
”We have spoken to a majority of our large shareholders and today, like many of them, we see buying our shares as the most compelling use of our capital,” Parsons said. Time Warner shares were trading 2% higher on Wednesday at $17,88.
Icahn has been pushing for Time Warner to spin off fully its cable TV company, the second largest in America after Comcast. It is planning to sell only 16%.
The cable networks division and the Warner Brothers free-to-air network showed a 21% gain in profits on a 10% rise in revenues. Time Warner said it had enjoyed higher advertising and subscription sales for premium channels such as HBO as well as profiting from the syndication of Sex and the City. — Guardian Unlimited Â