Divorce at last for Time Warner and AOL


The corporate marriage made in hell is finally coming to an end. Directors of Time Warner have voted to spin off AOL as a separate, standalone public company by the end of this year.

It was the first mega-deal of the brand new century back in 2001 when soaring Internet pioneer America Online announced a deal to acquire old media giant Time Warner for $164 billion in a stock swap merger. Shocked AOL shareholders couldn’t believe that they were being tied down to a stogy old company that made movies, TV shows and such. AOL’s share price plunged from its peak above $100, but the deal went through anyway and the merged company ended up being owned 55% by former AOL shareholders and 45% by former Time Warner shareholders.

In fact, it was the Time Warner shareholders who got the bad deal. The value of the AOL assets plunged as the Internet bubble burst. Then new companies came along – names like Google and MySpace – that took the Internet business model in new directions and left AOL with a dwindling number of dial-up subscribers as the public moved to faster broadband connections. The AOL assets became a liability and AOL Time Warner changed its name back to Time Warner, but was still saddled with trying to make money from the AOL businesses.

Time Warner has for some time been in a slimming down mode to make its business operations make more sense. It had already spun off Time Warner Cable into a standalone public company. The remaining question had been whether AOL would be sold off (whole or in pieces) or spun off to shareholders like the cable MSO. The answer came Wednesday night – spin-off.

“We believe that a separation will be the best outcome for both Time Warner and AOL. 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. The separation will also provide both companies with greater operational and strategic flexibility. We believe AOL will then have a better opportunity to achieve its full potential as a leading independent Internet company,” said Time Warner Chairman and CEO Jeff Bewkes in announcing the board action.

Google currently owns 5% of AOL. As part of a prior arrangement, Time Warner expects to purchase Google’s 5% stake in AOL in the third quarter of 2009. After repurchasing this stake, Time Warner will own 100% of AOL. Accordingly, once the proposed separation is completed, Time Warner shareholders will own all of the outstanding interests in AOL.