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Sitemap Sep-Archive-05 Time Warner, Microsoft in Talks on AOL

Time Warner, Microsoft in Talks on AOL  

In its all-out battle to defeat Google, Microsoft may be reaching out to a former nemesis. The Redmond Company is reportedly close to buying a stake in America Online or at least expanding a partnership they reached in 2003.

AOL is cash-strapped and losing customers, while Microsoft is cash-rich and investing heavily to expand its presence in Internet search and services. Microsoft would pay some money to Time Warner for the AOL stake, leaving the two companies approximately equal partners in the venture.

The intrigue began when the New York Post tabloid, citing anonymous sources, reported the two companies were engaged in talks. It said Time Warner is negotiating to sell a stake in its AOL division to Microsoft and perhaps merge the division with Microsoft's MSN group. It said Time Warner is also talking to Google and Yahoo! but Microsoft is the preferred buyer.

AOL, based in Dulles, Va., also happens to be Google's largest customer and accounts for about 12 percent of the search company's sales. But their relationship may be changing as Google continues offering new services that compete directly with AOL, including an instant-messaging service Google unveiled last month.

What remains to be seen is whether Microsoft is simply expanding its technology-sharing partnership with AOL or making a bolder move that could rearrange the relationships of consumer Internet-service giants.

There is some credence to what is going on, it makes some sense, said analyst Jonathan Rudy at Standard & Poor's in New York.

But Rudy said it's too soon to say what exactly is happening or what effect it will have on Microsoft stock. Microsoft closed at $26.27 yesterday, down 4 cents, and Time Warner was up 3 percent, closing at $18.50.

Microsoft executives told analysts in July that they are increasing the pace of merger activity and stepping up their fight against Google. The company is now preparing to roll out a new search-advertising platform and it's working on upgrades to its free Hotmail e-mail service that's being challenged by Google's Gmail.

The time is ripe for something to happen. MSN and AOL are both trying to refresh their businesses and reclaim users and ad sales they have lost to Google in particular.

Representatives of the companies declined to confirm the report, but analysts said it is likely that some sort of deal is under way.

Meanwhile, Time Warner is under pressure to improve its performance. On Monday investor Carl Icahn called on the company to divest its cable business and auction shares to increase the company's value.

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