Time for the AOL Fix

Time Warner Inc. (TWX) reported a 14% drop in first-quarter earnings on Wednesday, but its shares gained strength after the media giant said it was looking to spin off its troubled Internet unit AOL.

"Although the company's board of directors has not made any decision, the company currently anticipates that it would initiate a process to spin off one or more parts of the businesses of AOL to Time Warner's stockholders," Time Warner disclosed in a regulatory filing.

Weak ad sales and disappointing results at AOL sent the New York-based company’s net income down to $661 million, or 55 cents per share, down from $771 million, or 64 cents, a year ago. Excluding items, Time Warner earned 46 cents per share in the latest first quarter ended March 31.

“With our separation of Time Warner Cable (TWC), Time Warner has become a more content-focused company,” Chief Executive Jeff Bewkes said, “We’re also working to determine the right ownership structure for AOL.”

When AOL merged with Time Warner in a record deal in 2000, it was expected to bring multiple synergies. However, with increasing number of subscribers abandoning its dial-up service in recent years, AOL has only added to Time Warner’s woes.

Industry experts have long speculated that AOL would be spun off. The rumors gained ground when Time Warner proposed change the terms of certain bonds earlier this month and roped in former Google (GOOG) executive Tim Armstrong to lead the unit.

Today, Time Warner said it would review more favorable strategic alternatives for AOL. Shares of the company were up nearly 4% to $22.54 at noon on the New York Stock Exchange. They had touched an intraday high of $23.44 earlier in the session.

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