Liberty Media Interested in AOL Dial-Up Business

By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, August 13, 2008

Just days after Time Warner said it had cleaved off AOL's dial-up Web access division and was in a position to sell it, another big media company has expressed interest in a deal.

On Monday, John C. Malone, chairman and chief executive of Liberty Media, an $8 billion New York media giant that holds substantial stakes in IAC/InterActive, DirecTV and others, said the AOL access division would be an "attractive" investment.

Malone said in a conference call with analysts that no deal has been proposed that Liberty could take action on. But, he added, Liberty will continue to try to "maintain good relations" with Time Warner chief executive Jeffrey L. Bewkes "in the event that such a transaction would present itself."

Liberty, which owns roughly $1.5 billion of Time Warner's shares, might consider swapping its position in Time Warner for the access division. Analysts vary widely on what the unit might be worth, from $1 billion to $10 billion.

The future of AOL has been the subject of intense speculation on Wall Street, as well as in Dulles, where the company was anchored for many years before moving its headquarters to New York.

Last week, Time Warner said that it had completed a six-month-long process to separate AOL's access business from its advertising and content business.

"We have the necessary flexibility to do something strategic with either of these businesses today," Bewkes said in a conference call with analysts last week.

The decline of the access business -- which once had tens of millions of customers -- has weighed heavily on Time Warner's bottom line as subscribers have migrated en masse to broadband providers. But it still has 8 million monthly subscribers and potential buyers would likely view that business as a promising "cash-generating asset," Malone said.

In fact, AOL has contemplated maintaining a stake in the access division even if it is sold because of the monthly cash flow. Other buyers for the dial-up business might include Atlanta-based Internet service provider EarthLink and a private equity firm.

AOL has been in talks with Yahoo, Microsoft and others about possibly merging the advertising and content business. But nothing has come of those discussions yet. In its quarterly earnings report last week, Time Warner said profit slid largely because of declines at the AOL division. AOL lost 604,000 subscribers in the quarter. And while advertising picked up a bit, those losses still led to a 28 percent decline in AOL's overall earnings, to $135 million.

Liberty Media holds substantial positions in a range of media and technology companies, including Sprint Nextel.

Spokesmen for Time Warner and Liberty Media declined to comment on a possible deal.

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