AOL to take on Time Warner Entertainment from AT&T

In a move with implications across the cable industry, AOL Time Warner will take over AT&T’s chunk of Time Warner Entertainment [TWE], giving it complete control of HBO, the Warner Brothers film studio, the Court TV and Comedy Central cable channels and the WB Network.

Additionally, AOL has formed a new cable company -- Time Warner Cable -- from existing TWE cable properties and properties to be contributed by AOL Time Warner. The new cable system will have 10.8 million subscribers.

AT&T will sell its 27.64% stake in the TWE partnership for $2.1 billion in cash, $1.5 billion in AOL stock and a 21% stake in the new Time Warner Cable, removing a considerable debt for Comcast, which is acquiring the AT&T Broadband unit.

For its part, AT&T, and later Comcast, agreed to give AOL’s America Online service access to its high-speed cable lines, passing about 10 million homes within two years with the potential for an additional 9 million homes in the future. Financial terms of the agreement were not disclosed.

The deal dissolves a 10-year relationship between AOL Time Warner and AT&T. It had been in the works for a year and was a concern as Comcast continued its move to acquire AT&T Broadband.

-- Jim Barthold, senior editor