Time Warner Starts AOL Divorce Proceedings

Finally. Nine years after what can be described as a disastrous marriage, Time Warner Thursday began divorce proceedings from AOL.

Time Warner said it will rid itself of the beleaguered company by year's end. The spin-off will render AOL as an independent, publicly traded company.

"We believe that a separation will be the best outcome for both Time Warner and AOL," said Jeff Bewkes, Time Warner's chairman and CEO. "The separation will be another critical step in the reshaping of Time Warner that we started at the beginning of last year, enabling us to focus to an even greater degree on our core content businesses."

Here are the terms of the deal: Currently, Time Warner owns 95 percent of AOL while Google holds the remaining 5 percent. As part of an earlier agreement, Time Warner said it expects to purchase Google's 5 percent stake in AOL in the third quarter of 2009. After repurchasing this stake, Time Warner will own 100 percent of AOL. Once the proposed separation is completed, Time Warner shareholders will own all of the outstanding interests in AOL.

AOL will be overseen by Tim Armstrong, Google's former senior vice president, who was named chairman and CEO of AOL, LLC, Time Warner Inc., on March 12.

Wall Street was shocked when the companies announced the $182 billion deal in 2000, in what was called the biggest merger in history at the time, creating a media powerhouse that was then valued at $350 billion. How did it make sense that AOL, once a little upstart from Virginia, would buy Time Warner, the venerable media conglomerate? The thinking was that AOL, the No.1 ISP at the time, could successfully exploit Time Warner's vast media properties, turning the newly formed company into a content king.

The megamedia company was run by Steve Case, AOL's co-founder, chairman and CEO. Case was later forced out by the company in January 2003 after Time Warner got hammered in the stock market, caught in the burst of the Internet bubble and plagued by an accounting scandal. Wary of the Internet market in general, and Time Warner in particular, investors pulled out their shares and by 2002, the company's stock plummeted 70 percent.

The companies never managed to reach what they touted as terrific synergistic opportunities.

Hindsight, as they say, is everything. In 2005, Case penned an article for The Washington Post, titled "It's Time to Take It Apart," outlining his thoughts on the merger and suggesting that the companies be split up.

"Although I played a key role in bringing AOL and Time Warner together six years ago, it's now my view that it would be best to 'undo' the merger by splitting Time Warner into several independent companies and allowing AOL to set off on its own path," Case wrote. "By early 2004, it was clear that Time Warner had to 'integrate or liberate:' make the divisions work together or set them free on separate paths to pursue their own opportunities."

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