AOL Spinoff Approved Last Night by Time Warner Board: Here Are the Inside Details (Not in the Press Release)
While there were reports that the Time Warner board was meeting today to approve the spinoff of its AOL online unit, it actually gave the move an “enthusiastic endorsement” last night, according to sources.
Time Warner (TWX) just put out the press release about the move this morning, which has been long expected since former top Google (GOOG) advertising exec Tim Armstrong was named CEO of the long troubled AOL.
“Following the proposed transaction, AOL would be an independent, publicly traded company,” said the release, which gave few details of the shape of the new company.
But, several sources with knowledge of the situation said Armstrong is set to make massive changes to the structure of AOL, sweeping aside its current set-up almost completely.
That includes keeping the access business, which many thought would be sold off, and putting many of the companies it has recently acquired–including its pricey Bebo social networking site–in a separate ventures unit, which will try to attract outside investment.
The strategy will focus AOL on several key areas, including media, “scaled” advertising and communications.
Time Warner owns 95 percent of AOL, and Google holds the remaining five percent, but Time Warner said it would buy back that stake in the third quarter of 2009 as part of the transaction.
“Accordingly, once the proposed separation is completed, Time Warner shareholders will own all of the outstanding interests in AOL,” said the release. “The proposed transaction will be structured as tax-free to Time Warner stockholders.”
Armstrong is at the midpoint of a 100-day review of AOL, which has seen its profits and revenues drop in recent years.
That has meant a hard look at the structure put in place by his predecessors, former CEO Randy Falco and President Ron Grant.
They had cleaved AOL into three parts: the MediaGlow content studio; People Networks, which includes Bebo, as well as AOL’s communications assets like AIM instant-messengering service; and its Platform-A advertising unit.
Each has had its own president, and has been operated more independently.
Now Bebo, as well as start-ups AOL has bought recently such as the Userplane social-media apps unit and its Truveo video search service, will be “relocated” into AOL Ventures.
Each will operate on its own, and AOL will try to get venture capitalists to invest in them.
Armstrong has also decided to stress the AOL brand again, after years of creating a variety of new ones, and try to revive its other well-known brands, such as AIM and ICQ.
All the other parts of AOL will be integrated more tightly together, although the MediaGlow content business will get additional investment and still be run by Bill Wilson.
In addition, sources said it was unlikely AOL would make any big acquisitions after it spins out. Instead, it will focus on making key partnerships with a variety of companies.
Here’s the official press release:
Time Warner Inc. Announces Plan to Separate AOL
May 28, 2009
NEW YORK – Time Warner Inc. (NYSE:TWX) today announced that its Board of Directors has authorized management to proceed with plans for the complete legal and structural separation of AOL from Time Warner. Following the proposed transaction, AOL would be an independent, publicly traded company.
Time Warner Chairman and Chief Executive Officer Jeff Bewkes said: “We believe that a separation will be the best outcome for both Time Warner and AOL. The separation will be another critical step in the reshaping of Time Warner that we started at the beginning of last year, enabling us to focus to an even greater degree on our core content businesses. The separation will also provide both companies with greater operational and strategic flexibility. We believe AOL will then have a better opportunity to achieve its full potential as a leading independent Internet company.”
After the proposed separation is complete, AOL will compete as a standalone company–focused on growing its Web brands and services, which currently reach more than 107 million domestic unique visitors a month, as well as its advertising business, which operates the leading online display network that reaches more than 91% of the domestic online audience. AOL will also continue to operate one of the largest Internet access subscription services in the U.S.
AOL Chairman and Chief Executive Officer Tim Armstrong said: “This will be a great opportunity for AOL, our employees and our partners. Becoming a standalone public company positions AOL to strengthen its core businesses, deliver new and innovative products and services, and enhance our strategic options. We play in a very competitive landscape and will be using our new status to retain and attract top talent. Although we have a tremendous amount of work to do, we have a global brand, a committed team of people, and a passion for the future of the Web.”
Today, Time Warner owns 95% of AOL, and Google holds the remaining 5%. As part of a prior arrangement, Time Warner expects to purchase Google’s 5% stake in AOL in the third quarter of 2009. After repurchasing this stake, Time Warner will own 100% of AOL. Accordingly, once the proposed separation is completed, Time Warner shareholders will own all of the outstanding interests in AOL.
The proposed transaction will be structured as tax-free to Time Warner stockholders. The transaction is contingent on the satisfaction of a number of conditions, including completion of the review process by the Securities and Exchange Commission of required filings under applicable securities regulations and the final approval of transaction terms by Time Warner’s Board of Directors. Time Warner aims to complete the proposed transaction around the end of the year.