Time Warner to Spin Off AOL on December 9

Media conglomerate Time Warner Inc said on Monday it will spin off its AOL unit to shareholders on December 9, nine tumultuous years after one of the most disastrous corporate mergers in history.

Time Warner shareholders of record on November 27 will receive an AOL stock dividend for every 11 shares of Time Warner common stock they hold

Based on the closing price of Time Warner’s stock at $32.35 and its 1.17 billion outstanding shares, the ratio would effectively value AOL’s market capitalization at around $3.44 billion.

When AOL’s plan to merge with Time Warner was announced in January 2000, the Internet company was valued at $163 billion.

The combination was meant to herald the future of content distribution via the Internet, but the promised benefits were never achieved and Time Warner executives gradually regained control of the business.

Time Warner, which owns media brands such as CNN, HBO and Warner Bros, said back in May it planned to spin off AOL as it focuses on being a content company. Last year, it spun off its cable distribution unit, Time Warner Cable Inc.

In March, Time Warner appointed former Google Inc sales executive Tim Armstrong chief executive of AOL to prepare the company for life as an independent business.

Armstrong will spend most of the next few weeks on a road show speaking with Time Warner shareholders and Wall Street analysts about the prospects for AOL in Web advertising, online content and communications, where he sees the company’s future.

“This is a chance for Tim to show he truly excels at sales,” said Colin Gillis, an analyst at Brigantine Advisors. “He needs to sell to investors that AOL can recover and be relevant.”

Armstrong has been cutting staff and restructuring the company ahead of the spin. On November 12, AOL said in a regulatory filing that it expects to take $200 million in additional restructuring charges between the current quarter and through the first half of 2010.

New stock

AOL common stock will begin trading on a ‘when-issued’ basis on the New York stock Exchange on November 24 and will start trading under the ‘AOL’ symbol on December 10.

Time Warner said fractional shares of AOL will not be distributed to stockholders. Instead, they will be aggregated and sold in the open market, with the net proceeds distributed pro rate in the form of cash payments to Time Warner holders who would otherwise have been entitled to fractional shares.

The AOL spin-off has been structured so shareholders will receive the AOL stock as a tax-free dividend, but cash received in lieu of fractional shares will be taxable.

Separately, Time Warner said it will pay a regular quarterly cash dividend of $0.1875 per share on December 9.

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