AOL Time Warner is close to agreeing a $9bn (£5.9bn) deal that will result in the media group taking full control of Warner Brothers studios and a number of television channels including Sex and the City home HBO.
The world's largest media group was last night finalising details of the transaction with AT&T, the telecoms firm that holds a 27.6% stake in Time Warner Entertainment.
As well as the film and cable channels, the division owns a majority stake in the Time Warner Cable network, the second largest in the US. This network is expected to be spun off after the deal is agreed.
The two sides have been seeking an agreement for the past two years but had been unable to agree a price.
Under the terms of the complex agreement, AOL is expected to pay about $2bn in cash and another $1.5bn in shares. AT&T would also be given a direct 20% stake in the cable network business which would be valued at about $5.5bn. The cable business would then be given a separate listing, allowing AT&T to make a full exit.
Nailing down an agreement has been a priority for AOL chief executive Richard Parsons, who is eager to clean up the company's opaque balance sheet. In the nervous climate on Wall Street, investors are demanding more transparent and simpler books and AOL shares have been under pressure. The cash element could be funded from existing credit facilities.
Although the deal is likely to depress AOL's earnings in 2003 and could possibly threaten its credit rating, analysts viewed the anticipated deal as broadly positive. "Time Warner Entertainment restructuring should remove a strategic overhang and a cloud of uncertainty around AOL's stock," said JP Morgan analyst Jason Bazinet.
Both AOL and AT&T declined to comment.
AOL would also take full control of the cable channels Court TV and Comedy Central, but the jewel is HBO, which has built a reputation for cutting edge programming. Its latest award-winning hit, Six Feet Under, is a drama based around a family that runs a funeral business.
The two sides were said to be haggling over the final details on the crucial issue of America Online, the internet service, gaining access to the AT&T-owned cable networks for delivery of a broadband service.
AOL has so far failed to agree any deals with the cable industry to carry America Online, which is struggling to repeat its dial-up success in the higher-spending broadband market. America Online is also wrestling with slowing subscriber rates and a dire advertising market.
AT&T is in the process of selling its cable business to Comcast as part of a sweeping restructuring. It sold its wireless business last year.
The AOL/AT&T deal may not be the only big media move in the offing. Music, films and telecoms group Vivendi Universal is reported to be considering spinning off its US entertainments business - a move which could involve a deal with cable operator Liberty Media. Vivendi is under pressure to cut debt and while it has said it does not want to sell its music and film business, it could raise cash through a stock market flotation which would still leave it with a controlling stake.
