Time Warner, AOL separation official

NEW YORK — Time Warner made the unwinding of the much-maligned AOL merger official on Thursday, saying its board has authorized a separation of AOL into an independent, publicly traded company.

The entertainment giant made the announcement just ahead of its annual shareholder meeting.

The separation, to which TW has taken several smaller steps since hiring former Google top executive Tim Armstrong as chairman and CEO of AOL earlier this year, is expected to be completed around the end of the year.

“A separation will be the best outcome for both Time Warner and AOL,” said TW chairman and CEO Jeff Bewkes, who had long argued that the promised synergies of the AOL-TW combination never materialized. “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.”

He added that a separation will give both firms greater operational and strategic flexibility, and “AOL will then have a better opportunity to achieve its full potential as a leading independent Internet company.”

Armstrong 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.”

TW had previously discussed a possible AOL merger or other deals with the likes of Microsoft and Yahoo.

TW currently owns 95% of AOL, with Google holding the remaining 5%. As part of the AOL separation, TW said it expects to buy out Google’s 5% stake in AOL in the third quarter before spinning out the Web unit to its shareholders.

The transaction will be tax-free to stockholders.

AOL had basically acquired TW in 2001 for $124 billion, creating what was then called AOL Time Warner and promising major financial growth and a new age of synergy between traditional and new media.

But the combined giant soon fell short of its financial targets, and executives started leaving.

TW boss Gerald Levin who served as CEO of the merged company departed about a year after the deal was done.

The company also paid about $2.9 billion to settle lawsuits and end probes into whether AOL overbooked revenue to inflate its financials ahead of the merger.

In 2003, the conglomerate decided to drop “AOL” from its name.

When Bewkes became CEO in 2008, he promised to refocus TW on its content businesses. He added the chairman role in January.

Steve Case tweets about AOL

AOL co-founder and former AOL Time Warner chairman Steve Case shared his thoughts on the planned separation of AOL and Time Warner, which he helped merge, on Twitter on Thursday.

“My perspective on AOL & Time Warner: has been a long, tortuous journey — and after a difficult decade, its time to open new chapter,” he said in a post after the announcement of the planned spinoff. He added later: “Glad breakup now finally happening…Agree w/ (TW chairman and CEO) Jeff Bewkes, it is best for AOL and for TW.”

In another post, Case defended the vision behind the much-maligned deal. “Merger could’ve been transformative: driven convergence of TV/Internet/phone, ushered in digital music & video, etc,” he said before adding: “But synergy didn’t happen. Didn’t integrate businesses to drive innovation. Lots of missed opportunities.”

Looking ahead at AOL’s future, Case opined the company is “not what it was a decade ago, to be sure.” His prediction: “Uphill battle to return to greatness. But doable. Wish the team at AOL the very best!”

— Georg Szalai