Google Inc.’s 5% stake in Time Warner Inc.’s AOL unit may be worth less than the $1 billion the Web company paid for it in 2006, Google warned in a regulatory filing on Thursday.
“We believe our investment in AOL may be impaired,” Google said in its latest quarterly financial filing with the U.S. Securities and Exchange Commission.
Google said it would continue to review its investment for impairment, and impairment charges could be required in the future.
In a deal announced in December 2005, but closed in the first half of the following year, Google paid $1 billion in cash for a 5% indirect equity stake in AOL. In return, Google secured AOL’s search advertising business, and AOL remains Google’s largest search ad affiliate, analysts say.
The deal by the Mountain View, California-based company gave AOL a theoretical valuation of $20 billion at the time.
For more than a year, Time Warner has been in informal talks with both Yahoo Inc and Microsoft Corp about potential deals involving its AOL division, sources earlier told Reuters.
Time Warner, which has been looking to sell its AOL Internet arm in order to focus on its core media properties, said on Wednesday it plans to split AOL’s dial-up access unit from its advertising business by early 2009.
The move is a major step toward the eventual sale of one or both of the businesses, and would allow Time Warner to move beyond the troubled legacy of its 2001 mega-merger with America Online, which was then hailed as the “Deal of the Century.”
To put the $1 billion in perspective, Google had $12.7 billion in cash as of June 30 and spun off $1.77 billion in cash from operations in the latest quarter.
Google’s investment allowed it to keep its long-standing ad partnership with AOL and deprived rival Microsoft from winning the deal during negotiations in 2005.
Courtesy of Reuters Group.
Anupreeta Das and Eric Auchard are reporters for Reuters.com.