Will Google Soon Force Time Warner To Take AOL Public?

Includes: GOOG, TWX
by: Eric Savitz

Fascinating post today by Henry Blodget on Silicon Alley Insider asking whether Google (NASDAQ:GOOG) will soon force Time Warner (NYSE:TWX) to take AOL public.

As Blodget notes, Google in December 2005 spent $1 billion for a 5% stake in AOL. Terms of the deal say that starting July 1, 2008, Google has the right to ask AOL to register its stake for sale in a public offering, but that Time Warner would have the right to buy back the stake at fair market value in lieu of an IPO.

Blodget contends that Time Warner would likely not want to buy back more of AOL, even though they have likely made out well on this deal; he contends that the value of AOL has dropped from the $20 billion implied at the time of the deal to as little as $10 billion. Selling the stake back would also be trouble for Google, since it would have to take a loss on its investment.

Blodget’s conclusions:

  • An AOL IPO might make more sense for Google, as it would be able to dump its stock quietly on the open market or easily acquire a lot more of AOL.
  • Time Warner likely will either agree to take AOL public or try to talk Google out of exercising its IPO rights.
  • Bottom line: Google’s IPO rights make an AOL IPO more likely.
  • This, in turn, makes it more likely that Time Warner will just decide to break itself up.

Time Warner Thursday closed down 18 cents at $16.78; Google was off $5.30, at $694.05.

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