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AOL unloads money-losing local news service

Wednesday, 15 Jan 2014 | 5:46 PM ET
Tim Armstrong, CEO and chairman of AOL
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Tim Armstrong, CEO and chairman of AOL

AOL CEO Tim Armstrong has struck a deal with investment fund Hale Global to unload the Internet company's money-losing local news service, Patch.

In this new joint venture, Hale will run the business and bear its losses. (In our interview at CES last week Armstrong said he was working on this deal.)

Patch, AOL's big bet on local news, has been a big problem for the company. In 2012 Patch had a loss of $35 million, and last year after hundreds of layoffs and shuttering many of its sites, it still didn't turn a profit, despite a promise that it would by year-end.

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AOL's CEO Tim Armstrong provides insight on the next step for its business Patch.

The terms of the deal were not announced, but AOL is effectively contributing Patch, while Hale contributes cash. AOL will keep a large minority position without having to bear Patch's losses, a source said.

"We have the best operating partners in Hale and opportunity for investors to share in upside without downside of operational losses," Armstrong said Wednesday.

The local news site represented a rough patch for AOL, and in the third quarter Patch resulted in a $25 million impairment charge. Now, AOL could see a bit of upside if Hale's management of the service, which had more than 16 million unique monthly visitors in November, works out.

The companies' press release says: "Hale Global brings substantial experience in the areas of online media, local marketing, mobile, retail, and advertising and has an impressive track record for re-defining company visions and creating long-term growth from the companies they operate."

The companies anticipate the joint venture to close early in the first quarter. Hale says it plans to keep operating Patch's 900 sites. Investors will learn more about the joint venture from AOL's earnings announcement and conference call next month.

—By CNBC's Julia Boorstin. Follow her on Twitter: @JBoorstin.

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