Time Warner May Consider AOL Spinoff

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By Cecile Daurat
Bloomberg News
Saturday, May 21, 2005

NEW YORK -- Time Warner Inc. may consider spinning off its America Online division in the future to help finance acquisitions, chief executive Richard D. Parsons said.

Time Warner has discussed with management of Dulles-based AOL the possibility of selling shares of the unit in an initial public offering and decided not to go ahead with such a plan "at this point," Parsons, 57, told investors today at the company's annual meeting in New York.

"If it gets to the point where consolidation is happening in the Internet" industry, "the possibility of an IPO is out there," Parsons said after the meeting.

The likelihood of a spinoff probably depends on whether AOL chief executive Jonathan F. Miller, 50, succeeds in his strategy of attracting more Internet users and advertisers to his Web site to compensate for the decline in dial-up subscribers. Parsons, 57, said he is "encouraged" by AOL's prospects and that "AOL is an extremely important part of our company."

AOL's $112 billion purchase of Time Warner in January 2001 came to symbolize the boom and bust of the Web bubble and the rise and fall of new media. The purchase led to a record $98.7 billion loss in 2002 and caused the shares to tumble as the promised profit and sales growth never emerged.

Regulators then accused the company of overstating advertising and subscriber numbers starting in mid-2000. Time Warner settled all charges with $510 million in payments this year.

Time Warner said yesterday that it plans to start paying the company's first dividend since the America Online merger four years ago. The 5-cent quarterly payouts will start in September and are "the beginning of a commitment we hope will grow over time," Parsons said. Based on Time Warner's 4.69 billion outstanding shares, the dividend will cost the company about $937 million a year.

The payments illustrate the turnaround engineered by Parsons, who cut debt and settled government investigations into the AOL unit. Now he's driving sales growth with a new Web push and last month's agreement to purchase cable-television assets from Adelphia Communications Corp., the company's biggest deal since the merger.

"The turnaround is complete. We are moving forward and picking up speed," Parsons said.

AOL is trying to find new sources of revenue to compensate for the loss of U.S. subscribers to its dial-up Web access service. The business has declined by 5 million users in three years, to 21.7 million.

This year, Miller has introduced a series of new products, including a local search engine, a travel site, a free e-mail service and the first upgrade of AOL's Netscape browser in five years.

Next month, he will announce the centerpiece of his strategy, a revamped version of the Aol.com site that will look like a mix of Yahoo Inc. and Google Inc.'s sites. His aim is to attract more advertisers such as Coca-Cola Co. and regain a bigger share of the $9.6 billion U.S. online ad market, now dominated by Google.

Miller's strategy started to pay off in the first quarter. Ad sales rose 45 percent to $311 million. He still has a long way to go to compensate for the loss in subscriber revenue. Overall, AOL first-quarter revenue fell 3 percent to $2.13 billion.


© 2005 The Washington Post Company

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