Way “back in the day” the merger between AOL and Time Warner was seen as the dawning of a new media age, where traditional media companies like Time Warner embraced the Internet, latched it on to powerful content production and distribution, and reaped all alleged “synergies” that would follow. Of course, things didn’t quite work out that way, with AOL and Time Warner’s cultures clashing like milk and vinegar…and eventually leading to the death of Netscape, the birth of Mozilla, the withering of AOL’s walled garden, and a giant media company caught on the horns of being being both a content creator and a media distributor. AOL went from being the dominant name in the partnership to being an also-ran subsidiary, and it’s no secret that Time Warner has been wondering what to do with its AOL operations for some time.
A hint may have come this week, and Time Warner has asked some bondholders to change the terms of their credit with the company, specifically in regard to indentures which could impact the sale or transfer of AOL to another party. The move is called a “consent solicitation,” and basically amounts to Time Warner asking its creditors to rework the terms of the debt they hold in the company in order to facilitate a structure change or sale. As incentive on the deal, Time Warner is offering bondholders a payment of $5 for every $1,000 of debt they hold; to guarantee new agreements, Time Warner is offering HBO Inc. as collateral. The deal would cover about $12.3 billion in outstanding debt, meaning Time Warner has put itself on the hook for paying out almost $62 million to bondholders if they take the deal—and they have until April 15 to make up their minds.
Industry watchers currently place the approximate market value of AOL at somewhere around $2.5 billion, down from nearly $10 billion a year ago, and estimate that Time Warner could substantially improve its earnings sheet if it could divest itself of its AOL unit. Earler this month, Time Warner lured former Google vice president Jeff Bewkes to take over AOL’s operations.
