AOL Sale of Unit to Cinram Seen

AOL Time Warner Inc. is expected to announce as early as today the sale of its CD and DVD manufacturing operations to Cinram International Inc. for about $1 billion, according to people familiar with the deal.

The sale, which has been expected, is part of the New York media giant’s plan to raise cash and reduce its debt load. AOL Time Warner’s debt stood at $26 billion at the end of the first quarter.

The manufacturing unit, part of AOL’s Warner Music division, makes the record company’s compact discs and Warner Bros. Studios’ digital videodiscs. It has been a strong contributor to the music division’s results as DVD sales exploded in recent quarters.

Cinram, based in Ontario, Canada, is one of the biggest manufacturers of recorded media. The company appears to have edged out a rival bid assembled by Warner Music executive Jim Caparro, who heads Warner’s manufacturing and sales arm, sources said. The two sides submitted final bids last week.

Cinram already had been extending its ties to Warner. In February, Warner’s Canadian music arm said it would close its warehouse operations and turn over responsibility for distribution to Cinram, which manufactures its products.

An AOL Time Warner spokesman declined to comment on the sale. Representatives for Cinram and Caparro could not be reached.

While selling the manufacturing arm, the media conglomerate also has been talking with Germany’s Bertelsmann about a more grandiose plan to merge the two companies’ recorded music divisions in an unusual joint venture, according to people familiar with the talks.

Warner Music Group is home to such acts as R.E.M and Jewel; Bertelsmann’s music group claims Christina Aguilera, among others. A combination of the two firms would have global market share rivaling that of Vivendi Universal’s Universal Music Group, the industry leader.

The sale and merger talks come amid an industrywide slump in music sales, which have been hurt by online piracy.

AOL Time Warner shares closed Thursday at $16.40, up 4 cents, on the New York Stock Exchange.