Time Warner is moving forward with its plans to formally separate AOL's portal and advertising and dial-up access businesses and selling off the parts, but just how much is the company expecting? When Google invested $1 billion in AOL a few years ago for a 5% stake, that valued the business at $20 billion, it seemed an awfully high figure even back then. Today, it's speculated that Time Warner would be lucky to get even a quarter of that for all of AOL.Be that as it may, Time Warner reportedly wants $10 billion just for the advertising and content business, meaning there are only two serious potential bidders - Microsoft and Yahoo!, a situation made all the more complicated by the two's recent failed takeover talks, and Time Warner's interference in Yahoo!'s selection of new board members. Based on Time Warner's current stock price - around $14 - some analysts value the advertising and content business at no more than $3 billion to $4 billion.
As for the dial-up business, Time Warner is expected to want more than the analyst value of $2 billion to $3 billion - despite a declining performance for several years; the business is still profitable and generates a steady stream of cash. It currently serves 8.7 million subscribers, while EarthLink, the second-biggest dial-up service and so far only serious potential buyer, serves 3.3 million, including web-hosting and broadband subscribers. Speaking to the Wall Street Journal last week, EarthLink CEO Rolla Huff said: "We believe we're best-positioned to be the consolidator in this industry. When an industry reaches a point of maturation and growth stops, it simply makes good economic sense to consolidate onto one cost platform".
A Microsoft-AOL deal would make sense for both parties - Microsoft wants scale and content, both of which AOL's advertising and content business has in spades. At the same time, any potential deal could be hampered by AOL's existing search deal with search giants Google.
If Time Warner can convince Yahoo! it still needs AOL, it might get closer to that $10 billion valuation it wants for the online ad and content business - according to comScore, AOL's Platform-A is the largest online advertising network in the U.S. in terms of its reach, with 170 million individuals seeing its ads in June, although Yahoo! is potentially bigger if combining the reach of its advertising network with that of its own sites. In any case a potential AOL-Yahoo! deal would likely be structured through Time Warner giving Yahoo! cash in return for a large minority stake in the new combined AOL-Yahoo!
