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04:04 PM

Time Warner To Spin Off AOL

Struggling ISP hopes independence will provide a new lease on life.

Time Warner plans to separate from AOL, the company announced Thursday.

AOL will become an independent, publicly traded company under the proposal for a complete legal and structural separation approved by Time Warner's board of directors.

"We believe that a separation will be the best outcome for both Time Warner and AOL," Time Warner Chairman and CEO Jeff Bewkes said in a statement released Thursday. "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."

Bewkes said the split would allow both companies more operational and strategic flexibility, which would allow AOL "to achieve its full potential as a leading independent Internet company."

As an independent company, AOL can focus on growing its Web brands and services, as well as its ad business, the companies said. AOL boasts more than 107 million unique U.S. visitors each month. AOL reports that its online display network reaches more than 91% of the U.S. online market.

"This will be a great opportunity for AOL, our employees, and our partners," AOL chairman and CEO Tim Armstrong said in a statement. "Becoming a standalone public company positions AOL to strengthen its core businesses, deliver new and innovative products and services, and enhance our strategic options."

Armstrong said the landscape is competitive and the company's new status would help it retain and attract top talent.

"Although we have a tremendous amount of work to do, we have a global brand, a committed team of people, and a passion for the future of the Web," he said.

Time Warner currently owns 95% of AOL. Google holds the rest of the company. Time Warner said it still plans to purchase Google's stake in the third quarter, in keeping with an earlier agreement.

The tax-free transaction with Time Warner stockholders has not been reviewed by the Securities and Exchange Commission or given final approval by Time Warner's board. Time Warner said it hopes to complete the transaction toward the end of the year. Once it's complete, Time Warner shareholders will own all of the outstanding interests in AOL.

Time Warner bought AOL for $147 billion eight years ago in an attempt to forge a major new media empire, but AOL has lagged behind other Internet competitors. AOL's subscriber base peaked at nearly 27 million but dropped over the last several years to just over 6 million subscribers earlier this year. Its operating profits declined nearly 50% from the first quarter of '08 to same quarter of '09.

The separation will allow Time Warner renew its focus on its television networks and magazine properties.

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