Dividend.com: TWX Kisses AOL Goodbye

Time Warner to Finally Spin Off AOL

Media giant Time Warner(TWX Quote) said Thursday that it plans to spin off its AOL segment, ending a hapless eight-year merger that failed to produce many positive results for the two companies.

AOL will be spun off from Time Warner toward the end of 2009, and operate as a separate company. The new entity will be run by former Google(GOOG Quote) ad executive Tim Armstrong, whom AOL brought in back in March in an attempt to salvage the once-mighty company.

Time Warner, which owns 95% of AOL, will buy out Google's 5% stake in the third quarter for an undisclosed amount and then spin off the company later in the year.

Time Warner's CEO Jeff Bewkes said that "[AOL] becoming a standalone company will give it more focus and strategic flexibility."

AOL actually bought media giant Time Warner for $147 billion back in 2001, which has since become known as one of the worst mergers in U.S. history. Time Warner quickly had to absorb almost $100 billion in charges as a result of AOL's rapidly decreasing value in 2002 and 2003, soon dropping the "AOL" from the company's name.

With its once-dominant dialup Internet access revenue continuing to fade, AOL increasingly relies on its strength as a web portal to generate advertising income. In 2002, AOL had 26.7 million subscribers -- at latest count, the company had only 6.3 million dial-up customers.

Time Warner shares were mostly flat Thursday morning following the announcement.

The company has a 1.09% dividend yield, based on last night's closing stock price of $23.00. The stock has technical support at the $18 level. If the shares can begin to build momentum on this morning's announcement, we see overhead resistance around the $26-27 price levels. We would remain on the sidelines for now. Time Warner holds a Dividend.com DARS Rating of 3.2 out of 5 stars.