Microsoft Considering a Stake in AOL

Microsoft Corp. is considering acquiring a stake in Time Warner Inc.’s America Online Inc. unit, one of a number of possible Internet joint ventures the two companies are discussing, people familiar with the talks said.

The talks come against a backdrop of rapid change at AOL following its relaunch as a free portal aimed at building audience share and increasing advertising.

"There have been talks on ways Microsoft and AOL assets can be better leveraged and they’ve taken place over the normal course of business ...," the source said, calling reports of a joint venture "way overblown."

Although talks, which have taken place over several months, could advance, nothing was imminent, the source added.

Time Warner shares rose 2.7 percent after the New York Post reported on Thursday the two were talking about a joint venture.

Time Warner declined comment. Microsoft was not immediately reachable.

"The timing of the story is interesting" from Time Warner’s standpoint, said Ben Silverman, telecom analyst at Findprofit.com. "We believe the story was probably floated in an effort to prove to Wall Street that the company can unlock shareholder value without being forced to."

There is speculation it has been looking to dismantle a joint venture with NBC, while losses of more than $10bn from investments in broadband companies prompted Microsoft to say it would no longer look to such deals to extend its influence.

However, a combination would bring together two of the leading instant messaging services, AIM and MSN Messenger, at a time when the messaging market is developing quickly and expanding into new areas like voice over internet telephony, or VoIP.

AOL, despite its strong internet presence, has not pushed up the value of Time Warner shares at a time that internet valuations generally have shot up. Similarly, MSN does not add much value to Microsoft shares.