AOL TIME WARNER TO PAY BERTIE $6.75 BILLION IN CASH

AOL Time Warner is expected to announce today (1/7) that it will pay cash to buy out Bertelsmann's $6.75 billion stake in AOL Europe.

AOL Time Warner had been expected to detail how it planned to pay for the 49.5% stake in Internet service provider AOL Europe that it does not already own at a conference call for investors and analysts today.

According to a Reuters report, sources close to the companies said AOL Time Warner had decided it could comfortably absorb a cash payment that it will pay in two tranches: $5.25 billion in January and $1.5 billion in July.

"AOL's shares have been under pressure and there's quite a bit of volatility in the stock, so AOL Time Warner looked at its bank facility and decided it could absorb a cash payment comfortably," one source told Reuters.

Bertelsmann recently exercised an option to sell its stake in AOL Europe for $6.75 billion. Under the deal, AOL Time Warner has to pay $2.5 billion of the total in cash but could chose whether to pay the remainder in cash or shares. Analysts had widely expected AOL Time Warner to chose a mix of both.

AOL Time Warner shares have fallen from a year high of $58.50 in June to $31.95 at the close on Friday (1/4) after being hammered by a slump in advertising revenues and slower growth in its U.S. Internet subscriber base. The Sept. 11 attacks in the United States exacerbated the slowdown.

Meanwhile, the growth outlook of AOL Time Warner was the talk of Wall Street on Friday as several analysts said they would likely have to scale back their 2002 growth estimates following the conference call with management.

In the call, AOL TW CEO-elect Richard Parsons and colleagues will discuss the company's 2002 outlook, including the expected buyback of Bertelsmann's stake in the AOL Europe venture, the adoption of new accounting standards and the up-coming expiration of the iPlanet venture with Sun Microsystems.

The financial impact of these events and management's guidance on advertising trends should contribute to a narrowed AOL TW cash-flow growth rate this year, observers said.