You can't keep a bad idea down.

More than a year after speculation began in earnest that AOL Time Warner ( AOL) could be due to spin off America Online, the improbable and problematic theory has reappeared.

Former AOL Chairman Steve Case, formerly opposed to undoing the 2001 merger of America Online and Time Warner, has warmed up to the idea, according to a report in The New York Times that cited two unnamed "senior company officials."

But a buysider who follows the company closely calls the spinoff highly unlikely. He adds that the report of Case's interest in the idea is likely to be good for the stock, because the article speaks to Case's frustration at being marginalized at AOL Time Warner. Any reports of a diminishing role for Case are bound to make large media investors happy, says the buy-sider, because they blame Case for the disastrous stock performance of the merged company.

"People lost money," says the buy-sider, who spoke on condition of anonymity. They still want heads, and he's the biggest head out there."

The investor, who was previously bearish on AOL Time Warner, went long on the company following the release of its 2002 10-K in late March. AOL Time Warner shares rose 25 cents to $14.96 on Tuesday.

Christmas in July

The obstacles to any such spinoff are large and numerous. For example, any deal in the foreseeable future would seem guaranteed to bring only fire-sale prices.

Unlike other top-tier Internet properties that have been favored by the market -- Yahoo! ( YHOO), eBay ( EBAY) and ( AMZN) -- Wall Street has been valuing AOL at or near zero for some months now, as the company continues to lose ground in the all-important subscriber-count game.

With AOL Time Warner delaying the initial public offering of its more-stabilized cable properties because of market conditions, any valuation of the online service, still in turnaround mode, is likely to bring bottom dollar.

In fact, AOL's online ad sales business, which not only crashed but also incubated overenthusiastic and troublesome revenue-recognition practices, is actually showing year-over-year progress, says the company.

Additionally, as humiliating and frustrating as the AOL experience must be for former Time Warner executives, getting rid of AOL at Case's behest would have to be even more humiliating, because it would amount to selling a pig in a poke cheaply back to the man who you think overcharged you for it in the first place.

Elbow Grease

Though Time Warner shareholders may have paid dearly in the AOL gamble, it's hard to argue that a media and entertainment company -- one that has already embraced cable, movies and music -- should dump a major Internet property, especially one that's conceivably on the upswing.

And the scenario seems especially unlikely, says the investor, given the work that Time Warner veteran Don Logan and the people he's enlisted have put into fixing AOL. "They wouldn't put that much effort into it if they were going to spin it off," says the buy-sider. If the company can stabilize AOL's subscription base -- because it's losing subscribers to both cut-rate dial-up service and broadband cable connections -- AOL could be "a cable-like cash cow," he says.

Seasoned media investors would prefer Logan's stewardship to Case's, says the investor. Indeed, Case and other AOL veterans received much less support than other directors at the company's recent shareholder meeting.

"I have a feeling," says the investor, "there are very few people out there would miss Steve Case if he were to leave quietly."

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