Google Can Sell AOL Stake As Early As July 2008

December 25, 2005 0

Time Warner can buy back shares under pending $1 billion deal

Google Inc., the online media giant, will be able to sell its pending 5 per cent stake in Time Warner Inc.’s AOL internet unit as early as July 2008 according to Google’s recent filing with the Securities and Exchange Commission.

The search advertising company should see a quick turnaround for its $1 billion investment in Time Warner’s AOL, as SEC filings from Google indicate.


Under the agreement for the purchase of the $1 billion stake, Google has the right as of July 1, 2008, to require a public offering of its stake. That is the first day Google can potentially cash in on the deal it has made with Time Warner for a 5 percent stake in AOL.

The form 8-K filing Google submitted to the Securities and Exchange Commission gives a summary of the rights Google now has as part of the agreement. Google will be able to require the holding company with the AOL rights to register them for an initial public offering, July 1 of 2008 being the first date they can do so.

The value of that investment will rise or fall depending on the success of online advertising for AOL, which gains the right to sell Google AdWords text-based ads on AOL properties.

On December 20, America Online said Google had agreed to invest $1 billion to take a 5 per cent stake. The deal is part of a pact for Google to move beyond text-based advertising to allow AOL to sell graphical ads to Google’s fast-growing ad network.

The stake effectively valued AOL at $20 billion, a key benchmark should Time Warner elect to spin off or sell a part of its internet unit in response to dissident shareholder Carl Icahn’s proxy campaign to break up the company.

AOL has been aggressively moving toward what it calls an "audience-supported" model, and shifted its content from the walled garden of the subscription model as its subscriber numbers decline. Advertising will be the factor that drives AOL’s profitability.

If Time Warner does not want to see those shares go public, it will have to pay Google either in cash, shares, or a mix of those depending on the appraised fair-market value of the investment at that time.

The deal gives Time Warner the right to buy Google’s stake for stock or cash in lieu of a public offering, according to the filing.