Time Warner and AOL to demerge at end of the year

Time Warner and AOL are to go their separate ways by the end of the year, a decade after the internet company and media conglomerate came together in the biggest and most disastrous deal of the dotcom boom.

The separation, which management at the media group has been discussing for several years, will also see Time Warner buy back Google’s 5% stake in AOL.

The search engine company spent $1-billion buying the stake in 2005 as a way of preventing Microsoft from becoming the site’s advertising partner. But since then Time Warner has seen its share price crash and earlier this year Google wrote down the value of the stake by $726-million.

Demerging AOL, which will become a separately quoted company on the stock market, will allow Time Warner to focus on its TV, movies and publishing operations, including well known brands such as Warner Bros, HBO and Time magazine.

“We believe that a separation will be the best outcome for both Time Warner and AOL” said Time Warner chairperson and chief executive Jeff Bewkes. “The separation will be another critical step in the reshaping of Time Warner that we started at the beginning of last year, enabling us to focus to an even greater degree on our core content businesses.”

“We believe AOL will then have a better opportunity to achieve its full potential as a leading independent internet company.”

AOL, which bought social networking site Bebo for $850-million two years ago, is focused on its eponymous web portal and a host of other content sites, including celebrity gossip site TMZ. AOL’s portfolio sites were the fourth most visited destination in the US in the first quarter of the year — behind Google, Yahoo and Microsoft — with 106-million visitors per month, down from 110-million visitors in the first quarter of 2008, according to comScore Media Metrix.

“Becoming a standalone public company positions AOL to strengthen its core businesses, deliver new and innovative products and services, and enhance our strategic options,” said AOL chairperson and chief executive Tim Armstrong, who was lured away from Google to head up AOL earlier this year. He is the fourth AOL boss since the merger.

When AOL’s takeover of Time Warner was announced in January 2000, the $350-billion deal epitomised the feeling that “new” media was overturning the traditional “old” media worlds of TV, film and publishing.

But as the dotcom boom turned to bust, the rationale behind the deal crumbled and Time Warner found itself taking a mammoth $100-billion writedown. The merger also led to a long-running fraud inquiry that resulted in the company being slapped with a $210-million fine. Last year, the SEC filed civil charges against eight former executives, alleging that they inflated the firm’s online advertising revenues by more than $1-billion.

Time Warner dropped AOL from its corporate name just three years after the deal, while in 2005 the internet company abandoned its charging policy in order to try and stem the defection of users now plugged into broadband. Last year, AOL was dragged into the tussle between Microsoft and Yahoo!, as Time Warner considered selling the business to either company. – guardian.co.uk

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