Business

Wednesday November 18, 2009

Time will spin off AOL to shareholders next month


NEW YORK: Media conglomerate Time Warner Inc said on Monday it will spin off its AOL unit to shareholders on Dec 9, nine tumultuous years after one of the most disastrous corporate mergers in history.

Time Warner shareholders of record on Nov 27 will receive an AOL stock dividend for every 11 Time Warner common stock they hold. Based on the closing price of Time Warner’s stock at US$32.35 and its 1.17 billion outstanding shares, the ratio would effectively value AOL’s market capitalisation at around US$3.44bil.

When AOL’s plan to merge with Time Warner was announced in January 2000, the Internet company was valued at US$163bil.

The combination was meant to herald the future of content distribution via the Internet, but the promised benefits were never achieved and Time Warner executives gradually regained control of the business.

Tim Armstrong refers to one of AOL’s new ‘patch’ websites during a recent interview in Washington. Armstrong has been cutting staff and restructuring the company ahead of the spin-off. — Reuters

Time Warner, which owns media brands such as CNN, HBO and Warner Bros, said back in May it planned to spin off AOL as it focuses on being a content company. Last year, it spun off its cable distribution unit, Time Warner Cable Inc.

In March, Time Warner appointed former Google Inc sales executive Tim Armstrong chief executive of AOL to prepare the company for life as an independent business.

Armstrong will spend most of the next few weeks on a roadshow speaking with Time Warner shareholders and Wall Street analysts about the prospects for AOL in Web advertising, online content and communications, where he sees the company’s future.

“This is a chance for Tim to show he truly excels at sales,” said Colin Gillis, an analyst at Brigantine Advisors. “He needs to sell to investors that AOL can recover and be relevant.”

Armstrong has been cutting staff and restructuring the company ahead of the spin. On Nov 12, AOL said in a regulatory filing that it expects to take US$200mil in additional restructuring charges between the current quarter and through the first half of 2010.

AOL common stock will begin trading on a “when-issued” basis on the New York Stock Exchange on Nov 24 and will start trading under the “AOL” symbol on Dec 10.

Time Warner said fractional shares of AOL would not be distributed to stockholders. Instead, they will be aggregated and sold on the open market, with the net proceeds distributed pro rata in the form of cash payments to Time Warner holders who would otherwise have been entitled to fractional shares.

The AOL spin-off has been structured so shareholders will receive the AOL stock as a tax-free dividend, but cash received in lieu of fractional shares will be taxable.

Separately, Time Warner said it would pay a regular quarterly cash dividend of 18.75 cents per share on Dec 9. — Reuters


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