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AOL to Buy Out Bertelsmann Stake

The media firms also announced a four-year, $250 million plan to expand distribution of Bertelsmann's products.
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Updated from 7:44 a.m. EST

America Online

(AOL)

said Friday it would buy out German media company

Bertelsmann's

stake in AOL in a stock option transaction the companies valued at as much as $8.25 billion.

The media companies also announced a four-year, $250 million plan to expand distribution of Bertelsmann's magazine, music, book and television businesses in a deal that could dampen AOL's proposed merger partner

Time Warner's

(TWX)

expansion abroad.

Shares of AOL gained 2 1/4, or 3.6%, to close at 64 1/4 Friday.

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AOL, based in Dulles, Va., will use put and call options to position itself to buy back shares of

AOL Europe

and

AOL Australia

and end in a payment of cash or stock after Jan. 31 2002, according to a joint statement from the companies.

Further, the two companies entered an agreement that makes Bertelsmann a preferred provider of media content and e-commerce sites for AOL's 23 million members.

Though AOL has bought back Bertelsmann's stake in AOL attained over the past year, the new preferred relationship still stunts the international growth of media rival Time Warner. Bertelsmann's business segments of magazines, books, TV and film production are a European replication of Time Warner's media outlets and a stumbling block to the New York-based company's international expansion. Over the next five years, international online advertising is expected to grow at a robust annual clip of 80%.

"Time Warner has a big international presence, especially in film and music," said James Goss, an analyst at

Barrington Research Associates

who rates Time Warner a buy. His firm has not done any underwriting for Time Warner. "Obviously that would be the issue, if those parts would be affected. I would think that AOL would not want to hamper that (relationship)."

Bertelsmann said it would use the proceeds from the deal to build its existing e-commerce business and provide seed money for new e-commerce and content activities.

Bertelsmann is the fourth-largest media company in the world while Time Warner is the largest.