Time Warner to Spin Off AOL Unit

Time Warner expects to purchase Google's 5% stake in AOL in the third quarter of 2009.
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Updated from 8:56 a.m. EDT

Time Warner

(TWX)

announced plans Thursday to separate its AOL division into an independent, publicly traded company.

As part of a prior arrangement, Time Warner expects to purchase

Google's

(GOOG) - Get Report

5% stake in AOL in the third quarter of 2009. Once the proposed separation is completed, Time Warner shareholders will own all of the outstanding interests in AOL. Time Warner said it aims to complete the proposed transaction around the end of the year.

"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. "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 spinoff of the AOL unit has been expected for some time. When Time Warner posted first-quarter results in April, Bewkes said the company was moving further toward shedding the beleaguered Internet unit.

Time Warner and the former America Online announced their blockbuster merger in January 2000 at the height of the Internet bubble. At the time, the deal was seen as the model for the future of media, joining the old and the new, but the arrangement has been riddled with problems for years.

In the first quarter, AOL's ad sales dropped 20% and subscription revenue fell 27%. Total revenue at the Web services division was down 23% to $867 million. The number of AOL subscribers continued to tumble in the quarter, a drop of 570,000 accounts to 6.3 million.

After opening Thursday's session with gains, Time Warner shares were giving back 0.5% to $22.89 in recent trading.