Time Warner to spin off AOL

NEW YORK -- The separation, which will turn AOL into a standalone public company, will "provide both companies with greater operational and strategic flexibility," Time Warner CEO Jeff Bewkes said. "We believe AOL will then have a better opportunity to achieve its full potential as a leading independent Internet company."

AOL will be run by Tim Armstrong, who was recently hired from Google.

Time Warner says that it will buy Google's 5% stake in AOL later this year. That way Time Warner shareholders will own 100% of AOL after the spinoff, which will be structured to be tax-free to shareholders.

AOL has been working feverishly to build ad-supported online features that can reduce its dependence on paid subscriptions to its Internet service, mostly from customers using dial-up connections. That business has been declining as consumers have switched to speedier broadband services.

But AOL, like almost everyone in media, has suffered as the recession sent ad sales plummeting. The unit now accounts for less than 10% of Time Warner's revenue.

"Becoming a standalone public company positions AOL to strengthen its core businesses, deliver new and innovative products and services, and enhance our strategic options," Armstrong said. "Although we have a tremendous amount of work to do, we have a global brand, a committed team of people, and a passion for the future of the Web."

Time Warner made its announcement just hours before its annual shareholders meeting.