TELECOM Digest OnLine - Sorted: Google's AOL Investment May Lead to IPO

Google's AOL Investment May Lead to IPO

Michael Liedtke (
Sat, 24 Dec 2005 14:47:24 -0600

By MICHAEL LIEDTKE, AP Business Writer

Google Inc.'s $1 billion investment in America Online could lead to an
IPO in 2008, giving the online search engine leader and AOL parent
Time Warner Inc. an opportunity to capitalize on an Internet
advertising boom that they hope to fuel through their partnership.

The possible timeline for an initial public offering by AOL emerged in
a Friday filing with the Securities and Exchange Commission. The
documents provide additional details about a deal announced earlier
this week that extends the business ties that Google and AOL formed
when they began working together in 2002.

Although Google will hold only a 5 percent stake in AOL, it retains
the right to demand an IPO beginning in July 2008, according to the
SEC documents. If Time Warner doesn't want to pursue an IPO then it
could buy back Google's stake based on a fair market appraisal, the
filing says.

Time Warner has been under pressure from a group of shareholders led
by hedge fund investor Carl Icahn to lift its stock, which has fallen
by 9 percent this year to continue a prolonged slide.

To help get the stock moving, AOL co-founder Steve Case said he
proposed pursuing a spin-off three months before his October
resignation from Time Warner's board of directors.

In an interview earlier this week, Time Warner Chairman Dick Parsons
declined to discuss whether the Google investment might be paving
AOL's path toward an IPO. He described the Google alliance as the best
way to increase AOL's market value, which stands at $20 billion, based
on the Google investment.

Google has had a golden touch since its own August 2004 IPO, raising
investor hopes that it can help AOL become more valuable. Google's
market value has increased from about $23 billion at the time of its
IPO to $125 billion today.

AOL was among the biggest beneficiaries of Google's IPO. When the two
companies first became business partners in 2002, Google awarded AOL
stock warrants that were later converted into 7.4 million shares - a
stake that Time Warner sold for $1.1 billion.

Google's shares fell $1.11 Friday to close at $430.93 on the Nasdaq
Stock Market and Time Warner's shares dipped 2 cents to close at
$17.68 on the New York Stock Exchange.

Under the new five-year deal announced earlier this week, AOL will now
have the right to use Google's search technology on its own and also
will receive a $300 million credit to advertise its content and
services through Google's vast marketing network.

Google in turn is depending on AOL to sell more graphical ads to
diversify the search engine beyond the text-based ads that generate
most of its profits. Google also will be able to draw upon AOL's huge
video library -- a resource that could help boost traffic to its own
Web site.

AOL's Internet-leading instant messaging service will become
compatible with Google's 4-month-old service next year, but Google's
users will have to register with AOL to gain access to the expanded
network, according to Friday's filing.

While most analysts have applauded Google's investment in AOL, the
response among some search engine users has been less enthusiastic.

Web logs, or blogs, are filled with comments expressing fears that
Google will begin giving preferential treatment to AOL content in its
search engine. Those concerns have been exacerbated by a provision of
the deal requiring Google to help AOL make its material easier to

Marissa Mayer, Google's vice president of search products and user
content, sought to reassure the search engine's users in a posting on
the company's own blog.

"Business partnerships will never compromise the integrity or
objectivity of our search results," Mayer wrote. "If a partner's page
ranks high, it's because they have a good answer to your search, not
because of their business relationship with us."

Copyright 2005 The Associated Press.

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