Yahoo Ends Talks on Buying a Stake in Time Warner’s AOL

Yahoo Inc. said Thursday that it had pulled out of discussions on buying a stake in America Online Inc., leaving Microsoft Corp. and Google Inc. as the leading potential investors.

The decision to abandon the talks came after Yahoo Chief Executive Terry Semel and Chief Finance Officer Susan Decker met in late October with Time Warner Inc. executives in New York, Yahoo spokeswoman Joanna Stevens said.

Stevens said Yahoo had “politely passed” on proposed terms and “walked away from any interest in a deal.”

Two people close to the discussions said a key stumbling block was an insistence by Time Warner that it retain majority ownership in AOL.

One of the people, familiar with Time Warner’s position, said one arrangement under discussion had called for Yahoo to pay $13 billion in stock for an 80% stake in AOL’s growing content business, which includes its websites and the news, music and other services featured on them.

Under that plan, the person said, Time Warner would have kept all of AOL’s Internet access business, which is in decline as users abandon dial-up connections for high-speed lines.

The Yahoo withdrawal leaves Microsoft and Google as the leading contenders, with Google possibly combining with Comcast Corp. in a bid.

The interest in AOL comes as the company transforms itself from a “walled garden” focused on providing dial-up access to a provider of free content that is tapping a recent boom in online advertising.