An executive from Google Inc was appointed chief executive of AOL on Thursday, raising hopes that he would be able to turn around Time Warner Inc’s struggling Internet unit.
Tim Armstrong, who had been a senior vice president at Google and head of the company’s North and South American advertising operations, replaced AOL CEO Randy Falco, a veteran TV executive who took the job in November 2006. Falco, along with Ron Grant, AOL’s president and chief operating officer, were leaving AOL.
Armstrong, 38, will also take over from Falco as chairman.
This shake-up could mean a spin-off of AOL is more likely. Time Warner CEO Jeff Bewkes has said he’s open to a merger or sale of AOL, and in a statement Bewkes said Armstrong would help Time Warner “determine the optimal structure for AOL.”
The transition is another sign of turmoil in Time Warner Inc’s decade-long attempts to salvage its 2001 acquisition by AOL, once known as America Online. The US$147 billion AOL-Time Warner deal symbolized the astonishing wealth created by the dotcom boom and quickly became one of the most disastrous marriages in US corporate history.
During the past few years, AOL has been realigning itself around three core businesses — its “Platform A” advertising unit, “MediaGlow” publishing unit and “People Networks” social media unit. These businesses are meant to bring in revenue through online advertising, as a way to offset losses from its fading dial-up Internet access service.
Besides realigning AOL, Time Warner has made moves to separate the dial-up operations from these ad-focused businesses, which would make it easier for Time Warner to sell one or both.
A recent reminder of its ongoing troubles came last month, when Google — which paid US$1 billion in 2006 for a 5 percent stake in AOL and is its largest shareholder aside from Time Warner — triggered an escape clause in its contract with AOL.
The clause forces Time Warner to spin off Google’s holdings through an initial public offering or repurchase the stake at current market value.
This came after Google wrote off US$726 million of its investment in the fourth quarter because of AOL’s falling value. Google had made the investment in an effort to increase its advertising partnership with AOL and prevent rival Microsoft Corp from trying to get involved with the company.
Richard Greenfield, an analyst with Pali Research, called the management change “a huge positive all around” for Time Warner investors.
With Armstrong at the helm, he thinks it’s more likely that Time Warner will eventually separate the AOL unit from its main business.
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