Time Warner, struggling to stem the decline of its America Online (AOL) division, is reported to have held talks about selling the business to Microsoft.
Executives of the two companies are said to have met for discussions about a possible deal in the past few months. Time Warner lawyers have also been asked to overcome any potential roadblocks to the transaction from Washington, the New York Post reported.
The talks are said to have emerged from ongoing discussions between the two companies about ways to use Microsoft technology in Time Warner content businesses.
The firms have been working together since last May when they announced a US$750 million settlement of a lawsuit alleging the software firm had unfairly crushed AOL's Netscape browser.
Time Warner was severely bloodied by its merger with AOL four years ago.
Don Logan, a Time Warner veteran, now runs all of the subscription-based businesses at the company. He has made it clear that AOL is under the microscope and has no guaranteed future within the group if it cannot prove it has a sustainable business model. The company dropped AOL from its corporate brand name in October last year.
The internet service provider is trying to increase revenues in several ways; pushing a broadband product, piling on premium services, and adding a lower cost dial-up service. Last year, AOL lost 2.2 million subscribers, leaving it with 24.3 million.
Microsoft's MSN dial-up service has 9 million subscribers.
According to the Post, Microsoft would use its cash pile to finance the deal. It could also take a stake in the Time Warner cable network. Microsoft has already demonstrated its interest in cable by taking a US$1 billion stake in Comcast.
A spokeswoman for Time Warner rubbished the report. She dismissed the story as "entirely inaccurate." Microsoft declined to comment.
An earlier report in the newspaper said Time Warner had asked the investment bank Goldman Sachs to review options for the division, including a sale or spin-off.
It said that Time Warner's chief executive, Richard Parsons, was especially keen on pursuing a deal with Microsoft.
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