Microsoft to buy AOL from Time-Warner...

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Was rumored for a while now since the beginning of the year, but apparently it looks like its a solid possibility now.

NY Post Article
http://www.nypost.com/business/28069.htm

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AOL'S TIME IS UP
By TIM ARANGO

In a deal that would unite two of America's corporate giants as partners in the Internet business, Time Warner is in advanced discussions to sell a stake in America Online to Microsoft, The Post has learned.

According to two sources familiar with the matter, Time Warner is in talks with Microsoft about selling the stake in AOL and then combining it with Microsoft's Web unit MSN.

Under the plan being considered, Microsoft would pay some money to Time Warner for the AOL stake, leaving the two companies approximately equal partners in the venture.

While the deal could fall apart, the companies are hopeful they can wrap it up within the next couple of months.

Talks are most advanced with Microsoft — Time Warner management's preferred partner — but the media giant has also had discussions with both Yahoo! and Google over a sale or venture with AOL, according to a source close to Time Warner.

Time Warner's inclination to partner with a large tech company suggests that even if AOL's most recent strategy of becoming a free portal is successful, it may not be enough to keep the unit within the Time Warner fold.

While AOL began testing the portal in June and has won plaudits for the quality of its videos and other features, the company has yet to make a big marketing push, even though it promised one by the end of August, noted Rich Greenfield, an analyst at Fulcrum.

Greenfield, who said it's too early to judge whether the portal strategy is a success, believes Time Warner should wait before making a decision on the future of AOL.

"I think it's too early for it to be sold or spun out," he said.

AOL has seen the number of subscribers decline from 26 million in 2003 to fewer than 22 million now, as users fled AOL's dial-up service for broadband.

Its portal strategy — a reversal of its prior focus of offering exclusive content — puts AOL in direct competition with Yahoo!, MSN and Google.

The AOL discussions come as Time Warner management has been reviewing numerous strategic moves to boost the company's share price.

And as other media companies such as Viacom work out plans to break apart after years of consolidation, Time Warner is likely to be a starkly different company a year from now.

In addition to a likely AOL move, some or all of the company's cable unit will finally be spun off early next year.

Beyond that, sources close to Time Warner's management say that Time Inc., the company's publishing unit, could be sold or spun off sometime next year if its performance doesn't improve.

In addition to the strategic moves, Time Warner's Don Logan, who shares the No. 2 executive duties at the company with Jeff Bewkes, is expected to retire in 2006.

Since the disastrous merger between Time Warner and AOL in 2000, about $200 billion in shareholder value has been wiped out.

Until this year, company management had been hamstrung by fraud investigations by the Justice Department and Securities and Exchange Commission, but those probes were settled for $510 million. Time Warner's Chairman Dick Parsons later put aside some $2 billion to settle shareholder litigation.

Meanwhile, the company has been targeted by corporate raider-turned-shareholder-activist Carl Icahn, whose group has been amassing a stake in Time Warner and pushing for seats on the board of directors.