AOL Makes a New Beginning, According to Barron's

Time Warner(NYSE: TWX) is about to undo what happened almost 10 years back. In January 2000, AOL CEO Steve Case took over Time Warner in a $182 Billion stock and debt deal making it a largest ever takeover deal. It was widely hailed as a brilliant and infallible deal. However, reality turned out to be otherwise. Steve Case quit his chairman position in January 2003. As a last nail in the coffin, Time Warner has now announced plans to spin-off AOL.

According to Barron’s, Time Warner issued one share of its stock to Time Warner holders for every 11 shares of the parent company. Shares started trading last week and did not make a pretty debut. AOL has not been doing well in last couple of years. With the advent of broadband internet, its dial-up business has consistently been shrinking. Its position as a search engine is long gone. However, AOL still has some cards up its sleeves. It is a strong player in internet display ad sector.

RBC Capital analysts have projected its revenue at $3.2 Billion for this year which is down from $4.2 Billion in 2008. Dial-up internet business shows equally bleak prospects. Bernstein Research analyst Michael Nathanson has pegged subscriber figures at less than 5 million for year 2009. AOL had 9.3 Million subscribers in 2007. These figures provide ample of reasons for shareholders to dump their shares at the earliest.

AOL is now trying to cut costs. It already has announced plans to lay off more than one-third of its staff. It is also looking around for buyers for its several business units including Mapquest and ICQ. Further, the company’s contract with Google (NYSE: GOOG) will expire in 2010. It is expected that Microsoft (NYSE: MSFT), eager to jumpstart its search engine unit, might come up with lucrative offer. With a decline in its share price, AOL is becoming an attractive pick for Microsoft or Yahoo (NYSE: YHOO).