Time Warner to offload troubled AOL internet unit after nine years

The mega-merger between Time Warner and AOL, which defined the dot.com euphoria at the opening of the decade, will be unwound by the decade's close at the end of this year, the company decided yesterday.

The extraordinary combination of Time Warner, one of the most powerful media conglomerates in the US, with the upstart internet company AOL was announced on 10 January, 2000, with the then-chief executives embracing for the cameras.

But the deal quickly turned to disaster, as the valuations of dot.com companies proved to be inflated and AOL saw its business usurped by new rivals.

The company rose to prominence – as its unabbreviated name promised – by putting America Online, selling dial-up internet subscriptions to consumers. However, it failed to find a similarly lucrative alternative now that households get broadband internet from their cable or phone companies. Instead, AOL now dukes it out with Yahoo and other internet content companies in the battle to attract users to its free website, which it funds by selling ads. AOL's online advertising and internet access businesses will be separated into an independent, publicly traded company, owned by existing Time Warner shareholders, by the end of this year.

"The separation will be another critical step in the reshaping of Time Warner we started at the beginning of last year, enabling us to focus to an even greater degree on our core content businesses," said the chief executive Jeff Bewkes. "We believe AOL will then have a better opportunity to achieve its full potential as a leading independent internet company."

Google has a 5 per cent stake in AOL, which Time Warner will buy before it completes the spin-off.

The spin-off follows a long management review in which management had hoped to find a buyer or strategic partner for AOL.