Time Warner puts aside US$3bn to settle AOL claims

Time Warner, the world's largest media company, attempted to draw a line under its problem-ridden 2002 merger with the internet provider AOL, saying it would pay US$2.4bn to settle charges that it overstated revenue resulting from the deal.

The New York-based company said yesterday it would reserve a further US$600m for further litigation.

The US$2.4bn settlement is the one of the largest ever by a company to settle shareholder lawsuits. Time Warner has also handed over US$300m to end an investigation by the Securities and Exchange Commission into AOL, which had inflated advertising revenue ahead of the merger.

Dick Parsons, the chief executive, said his company would be able to focus on its future.

"We needed to get the government out of the equation and we have put the litigation issue in a box now."

The company, which owns CNN, Warner Brothers film studio and Time magazine, is under pressure to boost its growth. Its shares have lost two-thirds of their value since 2001 and have traded sideways for the past three years.

One strategy is to transform AOL from a subscriber internet service to a portal, offering services ranging from news to music downloads. The site is free to access and relies on revenues from advertising. The model is similar to that of Google and Yahoo and provides higher profit margins than one relying on subscribers.

Mr Parsons said the popularity of AOL's broadcasting of the Live 8 concerts underlined that the change of strategy would boost growth at the internet division, which some analysts think it should spin off.

Time Warner yesterday announced a US$5bn share buyback. In March it said it would start paying a dividend for the first time in four years. These measures should help increase the attractiveness of the company's stock, Mr Parsons said.

He expressed frustration that the stock market has not taken more interest in the giant company, which was overtaken by Google this year as the world's most valuable media group. Mr Parsons said Time Warner's shares were "deeply undervalued", adding that Wall Street analysts struggled because they "can't really put into their models" factors such as what is the future of digital technology.

The company reported a second-quarter net loss of US$321m, compared with a net profit of US$777m last year.

- INDEPENDENT