UBS: TW could spin AOL stake this year


NEW YORK - Time Warner Inc. could spin off a stake in online division AOL or merge it with another Internet company as early as this year, a move that would boost the value of the world's largest media company, a UBS analyst said Friday.

Time Warner said it had no such plans. "AOL is not for sale nor do we plan to spin any part of it off," Time Warner spokesman Ed Adler said Friday. "The company has a great new strategy and it's working well."

UBS analyst Aryeh Bourkoff initiated coverage of Time Warner with a "buy" rating and a $25 price target Friday.

"We believe that the prospects for an outright sale of AOL this year are high as the Internet company tries to go global," Bourkoff wrote in an e-mail to Reuters. "The best way to do this is through a partnership or merger."

Time Warner had said earlier this month at an investor conference that it had no such plans for AOL and was confident of its current revamped strategy to boost online ad sales by offering most of its services for free.

"Both Dick (Parsons, Time Warner Chief Executive) and I and the board are very optimistic about what they're going to do, which does not lead us to be thinking about taking AOL anywhere," Time Warner Chief Operating Officer Jeffrey Bewkes said at a Bear Stearns investors conference.

Time Warner spun off a 16% stake in its Time Warner Cable division in March and said earlier that it could some day consider spinning off a stake in the AOL unit to help it acquire other companies.

As AOL improves, "It could be a perfectly reasonable and beneficial thing for AOL to create a separate currency to use to go out and acquire companies," Bewkes said at the conference.

AOL's implied value based on UBS's estimates shows the unit is undervalued compared with Internet rivals like Google Inc. and Yahoo and is worth more spun off or folded into another company than as solely a part of Time Warner, he said.

Potential partners and buyers also include Google Inc., which already owns a 5% stake, Yahoo Inc. and Microsoft Corp.

Rumors of an AOL sale have dogged the unit on several occasions since its 2001 merger with Time Warner.

Speculation cranked up again ahead of Google's purchase of an interest in AOL as part of a global advertising partnership announced in Dec. 2005. Google's stake valued AOL at $20 billion at the end of 2005.

Microsoft and Yahoo had circled AOL before the Google deal, sources said at the time.

Time Warner has since launched an overhaul of AOL, disposing of its Internet access businesses worldwide and

building a free service for consumers that makes money from advertising, more closely resembling Google and Yahoo's  business models.

Bourkoff's analysis values the unit at around $17 billion, or about 7.2 times expected 2007 adjusted operating income before depreciation and amortization. That compares with multiples of 11.8 for Yahoo and 14.4 for Google.

The valuation implies a $4-per-share equity value for the AOL business.

A potential sale or merger, "is a key catalyst for the TWX shares in our view," Bourkoff said.

Shares in Time Warner fell 12 cents to $19.32 in afternoon trading on the New York Stock Exchange.