NEW YORK (Reuters) - Time Warner Inc on Thursday named Google executive Tim Armstrong to lead AOL, in what was seen as a bold move to reverse the fortunes of the struggling Internet unit in preparation for a spin-off.
The hire was a welcome surprise to Wall Street analysts, who see Armstrong as a respected executive who had overseen Google’s Americas operations. He is best known for his work in developing Google’s online advertising business and was widely touted last year as a CEO candidate for Yahoo Inc.
“Tim is the right executive to move AOL into the next phase of its evolution,” Time Warner Chief Executive Jeff Bewkes said in a statement announcing Armstrong’s appointment as AOL chairman and chief executive.
“He’ll also be helpful in helping Time Warner determine the optimal structure for AOL.”
Armstrong replaces Randy Falco, an ex-NBC executive, who will leave the company after a transition period, as will AOL Chief Operating Officer Ron Grant, Time Warner said. Falco and Grant were appointed in November 2006.
Bewkes has publicly said he is looking for the best way to resolve the future of AOL at Time Warner, including either a spin-off or merger with a partner such as Yahoo or Microsoft Corp’s MSN.
Time Warner has held on-off talks with Yahoo in particular about Yahoo combining with AOL’s audience and advertising business.
Pali Research analyst Richard Greenfield, who had called for the replacement of Falco and Grant, said news of Armstrong’s appointment was a “huge positive and major surprise for investors.”
“While we’ve been focused on the termination of Falco and Grant, we never expected that Time Warner would be able to get an executive of the caliber of Tim Armstrong to a struggling AOL,” said Greenfield.
In a client note earlier on Thursday, he argued that AOL’s earnings had declined 50 percent under Falco’s watch, based on projections for 2009 compared with 2006 results.
The timing of the appointment showed Time Warner’s determination to speed up its move to become a pure content company, dropping distribution businesses to focus on media brands like CNN, HBO and Warner Bros.
Earlier in the day, Time Warner Cable officially completed a recapitalization and a reverse-stock split as part of its long-expected spin-off process. It effectively means it is now a separate financial entity from Time Warner Inc.
Bewkes and Falco previously split AOL into two broad units, with one focused on audience and advertising, the other on a shrinking legacy dial-up Internet access business.
Investors had welcomed the strategy and it showed initial signs of growth, but that has slowed in the last year along with the wider advertising slump.
“You’ve got structural business-model issues (at AOL) and you’ve got a poorly run company,” said Ross Sandler, an analyst at RBC Capital Markets. “He can bring in hopefully some much needed fresh blood in terms of managerial experience.”
Armstrong’s departure from Google was seen by some as part of a trend of executives leaving the Web search leader. Last year, former senior sales executive Sheryl Sandberg left Google to join Facebook as chief operating officer. There has also been speculation that Marissa Meyer, another popular executive who oversees its search page, may leave Google.
“Armstrong was clearly an important executive during his tenure,” said Christa Quarles, Thomas Weisel Partners. But she added, “I think Google is now a large enough organization to be able to absorb the loss of any single executive.”
Time Warner shares were largely unchanged in after-hours trading, after rising 5.18 percent to $8.32 in New York Stock Exchange.
Additional reporting by Alexei Oreskovic in San Francisco; Editing by Tiffany Wu and Andre Grenon, Gary Hill