Google Inc. plans to invest $1 billion in Time Warner Inc.'s America Online in a deal that would deepen the ties between two Internet advertising giants and leave rival suitor Microsoft Corp. out in the cold.
After months of much-publicized negotiations with both companies, Time Warner Chief Executive Richard Parsons called Microsoft CEO Steve Ballmer on Friday morning to say he had agreed to a tentative deal in which longtime partner Google will acquire a 5% stake in AOL. Time Warner's board is expected to vote on the agreement Tuesday.
"Google pays a $1-billion premium for an insurance policy that ensures domination of a very valuable part of the Internet economy," said Jordan Rohan, an analyst with RBC Capital Markets.
Google's shares rose $7.62 to a record $430.15 on reports of the tentative deal. Time Warner gained 16 cents to $18 and Microsoft fell 2 cents to $26.90.
Spokespeople for the three companies declined to comment.
But details were confirmed by four executives who spoke on condition of anonymity because the deal still had some loose ends.
Seeking a foothold for its fledgling search-engine technology, Microsoft waged a nearly yearlong effort to replace Google as the provider of ads for AOL Search.
Microsoft and Time Warner discussed a variety of options, including a joint venture combining elements of their Internet operations and Microsoft taking a minority stake in AOL.
But when word of Microsoft's overtures leaked in September, Google began fighting to keep AOL, its largest source of advertising revenue.
About 11% of Google's $2.64 billion in revenue in the first half of this year came from AOL Search ads.
Google made key concessions.
The Mountain View, Calif.-based Web search giant has developed a vast following by presenting simple search results and refusing to continually bombard its users with promotions.
Now, in a first for the company, its negotiators agreed to promote AOL's services on its websites.
For example, Google.com searches for "Madonna" may return not only the standard ranking of relevant Web pages, but also, on the side of the page, a picture of the singer with links to AOL services featuring her songs and news about her.
Google also commissioned AOL to sell non-search ads to Google's advertising partners.
Ninety-nine percent of Google's revenue comes from simple text ads that generate money only when someone clicks on them.
