Peter Kafka

Recent Posts by Peter Kafka

Google Asks Time Warner for a $250 Million AOL Refund–Or Something Else?

Here’s another eye-poke delivered to Time Warner CEO Jeff Bewkes (pictured) from Google CEO Eric Schmidt: The search company has asked the media giant to refund the money it invested in AOL three years ago.

Time Warner (TWX) CFO John Martin announced the news during the company’s earnings call this morning: Google (GOOG) is exercising its “demand registration rights”–essentially a put option that forces Time Warner to buy back Google’s five percent stake in AOL, which it bought for a $1 billion in 2005, or spin out the company and take it public.

Here’s Martin’s statement: “I also want to point out that at the end of last week Google sent us a request to exercise the demand registration rights for its 5 percent stake in AOL. We are reviewing the request. But we have several options, including proceeding with the request, delaying a decision for some time or buying back Google’s stake at an appraised value, which would obviously be well below the original amount.”

There’s zero chance that Time Warner tries to float its struggling Web business as a standalone public company, so the first way to read Google’s request is that it’s asking for cash. Last month, Google announced that it had written down more $726 million of its AOL investment, so if it did get a check, it’d be worth $250 million.

Time Warner can afford to pay that–Bewkes is going to have more than $9 billion to play with when he finishes spinning off Time Warner Cable (TWC). And it’s possible that Google wants to get whatever cash it can before AOL’s value dwindles further.

Another  thought: What Google really wants is an extension of its paid-search deal with AOL–which is what the company’s $1 billion really got it back when it did the initial deal.

Or perhaps more intriguingly: An amendment to the change of control clause in the old deal, so that Google would continue to keep the AOL search business if, say, Time Warner sold the company to Yahoo (YHOO) or another bidder, like Microsoft.

Update (but not much of one). Here’s Google’s statement: “AOL remains an extremely valued partner, and we’ll continue to work closely together to provide their users with the best search experience possible. After careful consideration, we made the decision that we needed to exercise our rights now so we could be in a position to sell our interest when the timing made sense for us.”


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