As expected [WAMN: 22-Aug-02], AOL Time Warner is to unravel its Time Warner Entertainment cable and content partnership with AT&T in a $9 billion (€9.2bn; £5.9bn) deal.

AT&T, in the process of selling its cable-TV interests to Comcast, has agreed to exclude TWE, giving AOL TW sole control of Time Warner Cable, Home Box Office and Warner Bros film studio. In return, AT&T/Comcast will get stakes in AOL TW and Time Warner Cable (which will be floated), plus $2.1bn in cash.

Although concerns remain about AOL TW’s $28bn-plus debt and the practicality of plans to reduce it in coming months, the pact was welcomed by investors, with the media mammoth’s stock price rising 7% on the news. The deal is expected to be inked in four to six months.

However, it was not all good news for AOL TW, as the cloud of corporate scandal continues to darken its horizon.

The media group admitted last week that it may have improperly entered in its accounts some $49 million of advertising and sales revenue from three transactions in the eighteen months before March 2002 [WAMN: 15-Aug-02]. It has now emerged that one of the firms involved is none other than disgraced telecoms group WorldCom.

According to unnamed insiders, the deal in question involved AOL TW buying internet capacity from WorldCom’s UUNet division in return for the purchase of ads on America Online. As this is effectively an exchange of goods and services of similar value, AOL TW may have broken accounting rules by booking the proceeds as ad revenue.

The media giant has launched an internal review into the three suspicious transactions to see if any action needs to be taken. Meanwhile, America Online is already under investigation by the Securities and Exchange Commission and the Justice Department over other deals.

Data sourced from: multiple sources; additional content by WARC staff