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Time Warner Has AOL, Funding Problems

Company also reports down earnings that still beat expectations.

Time Warner has announced a potential plan to drop America Online, signaling a possible end to what has been characterized as a disastrous merger.


“Although the company’s board of directors has not made any decision, the company currently anticipates that it would initiate a process to spin off one or more parts of the businesses of AOL to Time Warner’s stockholders, in one or a series of transactions,” the company stated during a regulatory filing on Wednesday.


“The company may decide to pursue an alternative other than a spin-off with respect to either or both of AOL’s businesses.”


However, the company also announced that it intends to buy back the 5 percent stake in AOL it sold to Google in 2006.


Separately, Time Warner has been forced to absorb the cost of four films released last year by Warner Bros. after one of the studio’s financing partners, Village Roadshow, was unable to provide the funds as scheduled. The studio put the cost at $120 million.


As for AOL, Time Warner filed SEC papers on April 6 that would amend debt agreements and give the company more flexibility to spin off AOL.


Wednesday’s announcement coincided with news that Time Warner’s revenue declined 7 percent to $6.9 billion, compared with its profits this time last year.


According to the company’s first quarter filing, revenue from AOL fell 23 percent to $867 million and subscription revenue fell 27 percent. Profits from Time Warner’s publishing division, which includes People, Time, Fortune and Sports Illustrated, also declined 23 percent.


However, Wall Street analysis’s said Time Warner performed better than expected. Revenue from the company’s cable networks — including TNT, TBS, CNN and HBO – rose from $2.7 billion to $2.8 billion.


Earlier this month, Time Warner asked some of its bondholders to change their credit terms, which some analysts viewed as a sign that a spin-off of AOL was imminent. The company said the change would allow for a possible change in ownership at AOL.


Time Warner acquired AOL in 2000 for $182 billion – a deal that has reportedly resulted in the loss of  $100 billion of shareholder value.