Financial News

Time Warner (NYSE: TWX - news) will spin off the entire AOL internet business by the end of this year, the US media group confirmed on Thursday, bringing the curtain down on one of the biggest and worst deals in history.

AOL's all-share acquisition of the venerable home of Time magazine and Warner Bros films, completed in 2001, came to symbolise "old media" companies' capitulation to digital upstarts at the height of the internet boom.

The deal, which valued Time Warner at $164bn, was followed by a series of huge write-downs, including a $100bn charge as quickly as 2002, as it became clear that the synergies it promised were illusory.

Steve Case, the former AOL chief executive and one of the architects of the deal, used the Twitter messaging service on Thursday to say he was glad the separation was happening.

Thomas Edison's quote that vision without execution is hallucination "pretty much sums up AOL/TW" he said, saying a "failure of leadership (myself included)" scuppered the early hopes for the combination.

The bitterness left behind was summed up by one irate shareholder at Time Warner's annual meeting on Thursday, who said that January 11, 2001, the day the AOL Time Warner deal completed, "is a date I believe will live in corporate and economic infamy."

The separation, expected to be structured as a tax-free spin-off to shareholders, will realise the ambition of Jeff Bewkes, Time Warner chief executive, to slim his group down to one focused on creating television, film and publishing content.

Mr Bewkes, who has also spun off Time Warner Cable (NYSE: TWC - news) since becoming chief executive last year, told shareholders the company had not decided on a structure for the separation, but said: "It is not anticipated by us that it will be a sale."

"Our aim is to be the world's best content company," he told the meeting: "We've decided that the separation of AOL from Time Warner is in the best interest of both companies."

Tim Armstrong, the former Google (NASDAQ: GOOG - news) advertising executive hired by Time Warner to run AOL this year, said: "Becoming a standalone public company positions AOL to strengthen its core businesses, deliver new and innovative products and services, and enhance our strategic options."

Although Time Warner had contemplated selling off its declining dial-up access business, doing so while AOL was part of the conglomerate was difficult, people familiar with the matter have said. It was not immediately clear whether the separate company would pursue the dial-up sale plan.

As part of the separation, Time Warner will purchase Google's 5 per cent stake in AOL, which the internet search group bought in 2005 for $1bn but has since written down to $274m. Analysts at Credit Suisse and UBS (Virt-X: UBSN.VX - news) valued the entire AOL business at $3.5bn and $4.2bn respectively.

Mr Bewkes, who highlighted international expansion as a key goal, added that Time Warner expected to outperform all of its major competitors "this year and beyond."