Google Asks Time Warner to Look at AOL Spinoff

NEW YORK (Reuters) - Google Inc. wants to cash in its three-year-old, 5 percent stake in Internet media company AOL.

Time Warner Inc. said on Wednesday it received a request from Google last week seeking to exercise its "demand registration statement" on the AOL stake.

Time Warner Chief Financial Officer John Martin, speaking on a conference call with analysts, said Time Warner's options include taking AOL public, buying back the stake, or delaying a decision.

"We're reviewing what we received and we're evaluating our options," Martin said.

Time Warner sold the AOL stake to Google in a 2005 transaction that valued AOL at $20 billion. Last month Google wrote down the value of the stake, implying that AOL is now worth $5.5 billion.

Martin said the stake "would obviously be well below the value that was placed at the time of the original investment".

Google also has an agreement to provide search services to AOL in a separate long-term deal.

Collins Stewart analyst Thomas Eagan said the current deal will likely end in the second half of 2009 and give AOL the option to work with other partners on more favorable terms.

"When a new AOL search deal comes up this year we would not be surprised if AOL starts talking to other providers like Microsoft's MSN," he said.

Time Warner's plans to split AOL into a media and advertising business separate from its dial-up Internet access business has been hurt by a decline in advertising sales. AOL has seen a 20 percent drop in advertising sales in the first quarter.

Time Warner is looking for ways to combine AOL with partners such as Yahoo Inc. and Microsoft Corp. in a bid to build a larger audience or divest the unit.

Time Warner Chief Executive Jeffrey Bewkes said on the conference call that his company is considering all options, including spinning off AOL to shareholders.

"It's a scenario where we could spin off all or parts of AOL," he said.

"I think we've been pretty clear that we are, and AOL management is, pretty flexible and aggressive about looking at any opportunity to strengthen their position," said Bewkes.

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