In anticipation of a spin off/IPO for AOL, TimeWarner bought back Google’s 5 percent interest in the company for $283 million dollars. Google originally purchased the equity stake in AOL in 2005 to preserve its search relationship with its largest partner and fend of Microsoft, which was seeking a potential deal with or acquisition of AOL.
The original Google investment was $1 billion, which valued the TimeWarner AOL unit at $20 billion. The current valuation of AOL, based on the share buy back, would be roughly $5.6 billion.
Here’s what Google said, before it wrote down most of the value of its AOL investment last year, in its 10-Q filing (9/08) with the Securities and Exchange Commission:
We review our investment in AOL for impairment in accordance with FSP SFAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“FSP 115-1″). Based on our review, we believe our investment in AOL is impaired. After consideration of the duration of the impairment, as well as the reasons for any decline in value and the potential recovery period, we do not believe that such impairment is “other-than-temporary” at September 30, 2008 as defined under FSP 115-1. As a result, our investment in this non-marketable equity security is carried at cost on our Consolidated Balance Sheets. We will continue to review this investment for impairment on a quarterly basis. There can be no assurance that impairment charges will not be required in the future, and any such amounts could be material to our Consolidated Statements of Income.
These developments are quite far removed from the day when AOL acquired TimeWarner in an all-stock deal valued at $160 billion — then the largest merger/acquisition in US history. The combined company was supposed to marry the strengths of both businesses. That really never materialized and TimeWarner (and investors) soured on AOL to the point that it became perceived as a liability and is now being effectively unloaded by the media giant.