Time Warner Board OKs AOL Deal With Google

Time Warner Inc. approved a deal Tuesday with Google Inc. that gives the Web-search giant a 5% stake in America Online for $1 billion and broadens the advertising ties between the Internet companies.

With the agreement, which was reached last week, Google locked up a key source of cash: The simple text ads it places with AOL’s search-engine results generate about 10% of Google’s revenue. The deal also allowed Google to parry Microsoft Corp.’s aggressive bid for AOL’s online advertising business, especially search.

Time Warner Chief Executive Richard Parsons said Google won because the two companies were so familiar after working together on search since 2002.

“We could find more ways to create more revenue and create a more compelling partnership because of that knowledge and comfort we had with each other,” he said.

In a change, Google CEO Eric Schmidt said, the company would start placing banners and other so-called display ads on some of its websites. Google plans to let AOL sell those ads in exchange for a cut of the proceeds, and it is giving AOL $300 million in credits to buy ads on Google’s websites.

The partnership will not give AOL preferential placement in regular Web search results, Schmidt said.

Time Warner, for its part, found a strategic partner willing to value AOL at $20 billion. Parsons said that Google was the only shareholder in AOL aside from Time Warner, but that the deal didn’t preclude Time Warner from spinning off AOL or selling a stake to another company.

The two companies said they would also let users of their respective instant-messaging programs chat with one another. That is a coup for Mountain View, Calif.-based Google, which recently launched its Google Talk IM service. AOL’s AIM service is the market leader.

There is a small catch: Google Talk users must register for AIM to chat with people on the other service.

Google shares rose $5.14 to $429.74, Time Warner fell 21 cents to $17.74 and Microsoft climbed 3 cents to $26.86.