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Time Warner to spin off AOL as separate company

First, the media firm has to buy Google's stake.

NEW YORK - Time Warner Inc. is dumping AOL after spending nearly a decade trying to build a new-age media empire - only to wind up in a weaker position than when the marriage began.

The divorce, announced yesterday, will spin off AOL as a separate company run by former Google Inc. advertising executive Tim Armstrong.

Although AOL has been eclipsed by Google and other Internet stars, Armstrong still can try to build on a wide-reaching online ad network as well as AOL's Web sites, which remain a relatively big draw.

Time Warner owns 95 percent of AOL and will buy Google's 5 percent stake during the third quarter for an undisclosed amount. From there, AOL - which has about 7,000 employees - will be spun off into a separate publicly traded company around the end of the year.

"For AOL, becoming a stand-alone company will give it more focus and strategic flexibility," Time Warner's chief executive officer, Jeff Bewkes, said at Time Warner's annual shareholder meeting yesterday in New York.

The $147 billion deal in which AOL bought Time Warner in 2001 epitomized the mind-boggling wealth created during the dot-com boom and quickly became one of the worst corporate combinations in history. In 2002 and 2003, Time Warner absorbed nearly $100 billion in charges to account for the rapidly diminishing value of the combined company (which today has a market value of just $27 billion). Time Warner even dropped AOL from its corporate name.

AOL once defined the Web for millions of people. But much of its original revenue came from providing dial-up access, a business that peaked for AOL in 2002 at 26.7 million subscribers. Broadband ate away at the business, and AOL had just 6.3 million dial-up subscribers at the end of the last quarter.

Although AOL's operations make money, its operating profit of $150 million in the first quarter marked a 47 percent drop from the same period in 2008.

Time Warner shares closed up 55 cents at $23.55.

Former Time Warner CEO Gerald Levin, who was instrumental in AOL's takeover, recently declined to comment about the looming breakup. Levin now is director of a rehabilitation center in Southern California.

AOL cofounder Steve Case, the other main architect of the 2001 deal, wrote yesterday on the short-messaging site Twitter that he was glad to see the breakup. He said it "has been a long, tortuous journey" and now is "time to open a new chapter."