Microsoft & Time Warner Talks On AOL Joint Venture

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Time Warner, Microsoft in talks on AOL - source
Time Warner and Microsoft Corp. are discussing ways they could combine their Internet assets, including the possibility of an investment by the software giant, sources familiar with the matter said late last week.

"There have been talks on ways Microsoft and AOL assets can be better leveraged and they've taken place over the normal course of business ...," one source said, calling reports of a joint venture "way overblown".

Time Warner declined comment. Microsoft was not immediately reachable.

Shares of the world's largest media company rose 3% after the New York Post reported on Thursday the two were talking about a joint venture.

Talks of a Microsoft stake in the AOL division was one of several scenarios under review, a separate source familiar with the matter said. "There has been discussions about Microsoft investing in Time Warner," one source said, who also said nothing was imminent.

A combination would create the single largest Internet audience pool by unique visitors and forge a formidable online competitor in a field currently led by Yahoo and Google.

AOL and MSN would have a combined unique audience of about 167,8-million, although there would likely be duplicates. This compares to Yahoo's 101,3-million unique visitors and Google's 80,4-million in August, according to Nielsen/NetRatings.

Discussions on search and combining advertising forces began early this year, but have evolved over the past several weeks into finding ways to combine the businesses.

While they could advance further, working out issues such as how much AOL is valued and other structural concerns have been "difficult" and nothing was imminent, a source added.

Broad discussions on how the two companies could work together began two years ago after the companies settled a long-running antitrust suit that America Online, a unit of Time Warner, filed against the software giant, the source said.

One analyst said Microsoft, which debuted its search engine late last year, was likely looking to replace Google as the underpinnings of AOL's search services. About 11 percent of Google's revenue came from AOL in the first half of 2005. "MSN may want to sell search to AOL," said Matt Rosoff, an analyst at Directions on Microsoft, an independent research firm based in Kirkland, Washington.

Meanwhile, Time Warner has been under pressure to boost its stock price, which has fallen 70% over the past five years. Corporate raider Carl Icahn this week said he planned to seek one or more shareholder-nominated board seats at the company to force changes.

Icahn has demanded that the company raise its stock buyback program to $20-billion from Time Warner's existing commitments of up to $5-billion and completely spin off its cable division.

One investor was cheered by the discussions and said anything that could add some $4 per share to the stock price from improvements at AOL was a good sign.

"Management is not asleep at the switch," said Larry Haverty, a portfolio manager at Gabelli Asset Management, which has a stake of about $286-million in Time Warner.

"Anything you can do to move the needle in that direction is terrific for shareholders."

Low ball estimates for AOL are about $10-billion with improvements possibly doubling that valuation, Richard Greenfield, an analyst at Fulcrum Global Partners said.
http://www.engineeringnews.co.za/eng/ne ... show=74243

September 18, 2005
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