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 Amazon.com ( 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.