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Cable Technology Feature Article

November 19, 2009

AOL to Layoff 2,300, Spin Off from Time Warner

By Brendan B. Read, Senior Contributing Editor

How the mighty have fallen. Nearly a decade ago AOL (News - Alert) was everywhere, its e-mail arrival announcement “You’ve Got Mail” had become the title of a hit movie starring Tom Hanks and Meg Ryan.

Critics then derided AOL’s blanket marketing campaigns and service quality; they called it “the Internet with training wheels.” Yet so powerful the brand and the company had become that it had bought Time Warner (News - Alert) in 2001, at the height of the dot-com boom, for $166 billion (reports DailyFinance.com); the combined firm became AOL Time Warner.
Now back to Time Warner -- and to the chortles of detractors the company is spinning off the AOL component. The online giant appeared incapable of coping with the broadband revolution even as far back as 2002, reports CNET; its bread and butter is dial-up access. A remake into the display online advertising field had been hurt thanks to a slowdown in 2006 greased by the 2008 downturn, according to MarketWatch.

Now to make the new firm viable, AOL’s top management plans to cut 2,300 positions or one-third of its labor force, reports CNNMoney.com, which is also owned by Time Warner.

AOL said it will be seeking volunteers for layoffs from Dec. 4 -Dec. 11, 2009 before it begins cutting positions involuntarily. AOL filed the information with the Securities and Exchange Commission.

AOL’s business, reports TechCrunch, citing its SEC (News - Alert) 10Q filing in April 2009 is focused on attracting and engaging Internet consumers and providing advertising services on both the AOL Network and the Third Party Network. It still has dial-up customers.

“We will need to do an involuntary layoff if we do not reach the target numbers through the voluntary option,” AOL spokeswoman Tricia Primrose told CNNMoney. “We believe the voluntary program gives people more choice and decision-making ability instead of waiting for the final cost recommendations and involuntary layoffs.”

The company estimated that the restructuring will save AOL $300 million annually, but will cost it $200 million in the first half of next year.

The Time-Warner board of directors announced Monday that it will spin AOL off on Wednesday Dec.9. Time Warner stockholders of record as of 5 p.m. on November 27, 2009, the record date for the distribution, will receive one share of AOL common stock for every eleven shares of Time Warner common stock they hold.

Fractional shares of AOL common stock will not be distributed to Time Warner stockholders. Instead, the fractional shares of AOL common stock will be aggregated and sold in the open market, with the net proceeds distributed pro rata in the form of cash payments to Time Warner stockholders who would otherwise be entitled to receive a fractional share of AOL common stock.

CNNMoney reports that Tim Armstrong, AOL's chief executive, also told his staff that he will not take a bonus for 2009.

“As a member of our team and the person who takes accountability for the results of the company, I am making the decision to forego my 2009 bonus,” Armstrong said in an e-mail to AOL employees. “That decision is a personal one and is not a sign for the future payout of the overall bonus plan for employees.”

Brendan B. Read is TMCnet’s Senior Contributing Editor. To read more of Brendan’s articles, please visit his columnist page.

Edited by Patrick Barnard