Time Warner Buys Google’s Stake in AOL; Spin-off Next?

On Monday it was announced in a U.S. regulatory filing that Time Warner paid $283 million for Google Inc’s 5 percent stake in AOL. This underscored Time Warner’s plans to spin off AOL by the end of the year. This transaction places AOL’s total value at roughly $5.7 billion in the eyes of both TW and Google.

The filing is a registration statement with the government that AOL must file before its long-expected spin-off from Time Warner, and brings the company all the closer to ending an eight-year-old merger.

Reuters reports:

Brigantine Advisors analyst Colin Gillis said the implied $5.7 billion AOL valuation from purchasing Google’s stake represents a “floor valuation” as AOL moves toward a spinoff. “It shouldn’t be anything lower than that,” said Gillis.

The $5.7 Billion evaluation represents roughly one-sixth of Time Warner’s current market cap of $33.5 Billion, a paltry amount compared to the relatively even value that AOL and TW each enjoyed when they merged 8 years ago.

However, there is growing belief on Wall Street that AOL’s worst day’s are behind them — that changing their core business model from a subscriber-driven ISP to a media company (fueled by numerous niche blogs) has made AOL a very attractive business unit moving forward.  AOL Chief Executive Tim Armstrong also revealed to Reuters last week the company will focus primarily on being a Web advertising business.

Some speculate that this is the very reason why Time Warner is spin-off AOL now, while their revenue and reputation is on the upswing.

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