[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Friday, 16 December 2005, 21:56 GMT
Google 'in exclusive AOL talks'
Google Logo
Google has been expanding its operations beyond search
Google shares have hit record highs on reports it could take a stake in Time Warner's internet unit, AOL.

Under the deal, Google would pay $1bn (565m) for a 5% stake in AOL, the Wall Street Journal website has reported. The two firms have declined to comment.

Time Warner has been seeking a partner to boost AOL's value, which would in turn lift the US media giant's shares.

Any deal between the two sides would freeze out Microsoft, once considered the front-runner for a deal with AOL.

Yahoo had also been in talks with Time Warner but dropped out in November, reportedly because the media giant wanted to retain a majority stake in AOL.

Shares in Google surged more than 7% to highs of $435.20 as reports of the talks emerged.

Under pressure

Time Warner has seen its share price plunge since 2000 - sinking from highs above $85 to around $18 currently - and has come under pressure from investors to shake things up.

A tie-up with Google would make sense. Time Warner has been losing out online to rivals like Microsoft and Yahoo.

AOL has had a long-running relationship with Google so it would seem... that it would be the most logical thing to continue that relationship
James Goss, analyst

For its part, Google may be interested in getting access to AOL's e-mail and instant messaging service.

It would strengthen Google's hand against rivals Yahoo and Microsoft, who have well-established webmail and instant messaging services. Google is a relative newcomer to this area with Gmail and Googletalk.

A deal would also allow Google to reach AOL's well-established online communities and benefit from the sale of adverts.

AOL already uses Google's search engine, and the arrangement is estimated to account for 2% to 4% of Google's revenue on a net basis.

"From the Time Warner and AOL perspective, it's been a plus obviously that they're getting fought over," Barrington Research analyst James Goss told the Reuters news agency.

"Also, AOL has had a long-running relationship with Google, so it would seem to me that it would be the most logical thing to continue that relationship if they could strike favourable terms," he added.

'Travesty'

However, news of the talks have not been welcomed by all quarters.

Carl Icahn, one of America's most high profile investors, dubbed the discussions "a bit of a travesty" in an interview with Dow Jones Newswires.

"It is my belief that, if the proper partner were allowed to have control of AOL, shareholder value would be much more greatly enhanced than through a half-hearted joint venture that might only serve the purpose of entrenching management," he said.

Mr Icahn has been carrying out a high profile campaign demanding a shake-up at Time Warner, accusing the media giant of not doing enough for its shareholders.

Mr Icahn has also previously warned the Time Warner not to give away AOL for too cheap a price.

In a speech last month he warned he would "hold the board of Time Warner personally responsible if they give away AOL for the wrong reasons".




SEE ALSO:
Yahoo out of talks on AOL stake
10 Nov 05 |  Business
Microsoft 'set to take AOL stake'
07 Nov 05 |  Business
Time Warner sees 80% profit rise
02 Nov 05 |  Business
AOL co-founder leaves Time Warner
31 Oct 05 |  Business
Parsons denies Google-AOL tie-up
13 Oct 05 |  Business
Time Warner keeps faith with AOL
21 Sep 05 |  Business


RELATED INTERNET LINKS:
The BBC is not responsible for the content of external internet sites


PRODUCTS AND SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific