Time Warner buys back AOL stake from Google

Time Warner bought back Google’s 5% stake in AOL for USD283m earlier this month as part of plans to reverse its ill-fated merger with AOL, according to regulatory filings. Google paid USD1bn for its stake in AOL in 2005, but has since written down the value of its investment by more than 70%. The deal values AOL at around USD5.6bn.

Despite losing more than USD700m on its investment, Google is unlikely to regret taking the stake in AOL as it helped the firm secure a long term search-ad deal. AOL accounts for around 3% of the US search market and is thought to be one of Google’s largest individual customers. 

The filings submitted ahead of AOL’s imminent separation from its parent company show that AOL recorded a profit of USD82.7m in Q1 2009, less than half the USD160m it made in the same quarter of 2008. For the full year 2008 the company recorded a loss of USD1.53bn as it was buffeted by intense competition and falling ad sales following the credit crunch. 

The filings submitted ahead of AOL’s imminent separation from its parent company show that AOL recorded a profit of USD82.7m in Q1 2009, less than half the USD160m it made in the same quarter of 2008. For the full year 2008 the company recorded a loss of USD1.53bn as it was buffeted by intense competition and falling ad sales following the credit crunch.

AOL expects to incur USD90m in restructuring costs over the remainder of 2009 in addition to costs from layoffs and office closures that amount to USD58m so far this year. CEO Tim Armstrong recently set out plans to reverse AOL’s fortunes by refocusing the company on becoming the biggest display ad seller and content provider on the web.

The filings reveal that AOL’s exclusive web search deal with Google comes to an end in 2010. This leaves the door open for Yahoo! and Microsoft to jointly bid for the contract, should a search deal between the two firmsfinally take place. Search ads generate USD638m a year for AOL, about a third of the company’s annual revenue.

Despite insisting that AOL needs to reposition itself as a web advertiser and content producer, Armstrong says in the filing that AOL’s subscriber base at its steadily declining internet connection business is still integral to the company’s future. He says that AOL’s remaining 6m or so subscribers not only provide vital revenue, but are also some of the most plugged-in consumers of AOL content.

?In general, subscribers to our subscription access service are among the most engaged consumers on AOL Media? says the filing. ?As our subscriber base declines, we need to maintain the engagement of former subscribers similar to historical levels and increase the number and engagement of other consumers on AOL Media.?

The fillings reveal that AOL intends to enter into a number of commercial arrangements with Time Warner once the two companies separate, including an agreement to cross-license intellectual property.