Time Warner to separate AOL near year end

By Paul Thomasch

NEW YORK (Reuters) - Time Warner Inc on Thursday made official plans to separate its AOL division sometime around the end of this year, a widely expected move that sheds one of the media company's weakest divisions.

For Time Warner, the move represents a return to its roots as a pure content company with a focus on its cable channels, film studios and publishing businesses and unwinds a massive merger in 2000 that failed to live up to its promise.

The struggling AOL, for its part, will once again be an independent company left to seek its fortunes in an Internet landscape dominated by Google Inc and smitten with social networks like Facebook and Twitter.

Time Warner, which for months has signaled such a plan was in the works, said the deal has been approved by the board and would be structured as tax-free to its stockholders. It still needs regulatory approval.

Time Warner recently spun off Time Warner Cable Inc and is bent on becoming a pure content company that concentrates on brands like CNN, HBO and Warner Bros. Its shares were steady in midday trade, having climbed 40 percent in the last month.

"Overall, we are encouraged by the pace of change at Time Warner and management's move to deconsolidate," Credit Suisse analyst Spencer Wang said in a report.

In the last three years alone, AOL's share of the U.S. search market has dropped from nearly 12 percent to around 4 percent. Its dial-up web access business continues to shrink. And a broader pullback in spending by marketers is hurting its web advertising business, Platform A.

Still, analysts say AOL could find its footing as an independent company under Tim Armstrong, the former Google executive tapped in March to head the company.