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March 13, 2009

Why Would a Senior Google Exec Leave for AOL?

Time Warner (TWX) has hired one of Google's most senior executives to run AOL. Tim Armstrong was a member of Google's Operating Committee and President of Americas Operations. Armstrong also has a background in traditional media including developing internet properties at traditional media companies.

Armstrong is undoubtedly totally loaded due to his 8 plus years at Google (GOOG), so this seems like an odd move given AOL's declining relevance and very poor financial returns. From that perspective alone, this has to be considered a positive for TWX. Obviously, Armstrong sees something at AOL from which he can create value.

Maybe more important, it seems unlikely that he would move to AOL unless he was given a very clear plan for the future of the division including the possibility that he will either become Chairman of a public company when AOL is spun out or that he will get a big golden parachute when AOL is divested. Either would be bullish for TWX shares.

I've commented extensively that any separation of AOL from TWX is bullish even if value realized for shareholders is not much above $0. That is unrealistic of course. Even after writing down its AOL investment last month, Google's valuation implies a $5 billion valuation, or over $1 per TWX share. Earthlink (ELNK) still has a market cap of $700 million, a reasonable looking stock price chart, and free cash flow machine in its dial-up business (half of AOL).

TWX has said repeatedly that it would directly address AOL's structure after it completed the split from Time Warner Cable (TWC). That will occur at the end of March so I view the new management at AOL as a positive that some resolution is coming in 2009. Once again, almost any resolution is a bullish for TWX

TWX is held in Northlake client accounts including my personal accounts.

Posted by Steve Birenberg at March 13, 2009 08:44 AM in TWX