Yahoo! withdraws from bidding for AOL

Yahoo! has pulled out of the competition to buy America Online from its parent Time Warner, narrowing the field of contenders to Microsoft and Google.

A key stumbling block between Yahoo! and Time is thought to have been the media giant's insistence on retaining a controlling stake in AOL.

Dick Parsons, Time Warner's chief executive, admitted last week his company was in talks with potential suitors for AOL, but added that he wanted to keep a majority stake in the internet business.

Yahoo!'s decision to abandon talks came after its chief executive, Terry Semel, met Time executives last month. The move leaves Google and Microsoft as the most likely suitors for AOL.

A deal with Google would give it a way to build a portal while preserving its existing relationship. Google makes more than 10 per cent of its revenues from allowing AOL to use its search technology. The companies share advertising revenues.

Microsoft is keen to strike its own deal with AOL because it wants to break Google's dominance on the internet and would like AOL to move to using its MSN search technology.

The courting of AOL is a welcome development for Time. The media company merged with AOL in 2000, in the biggest and most problematic deal of the dot.com boom. Time, whose assets include the CNN and HBO networks, Time magazine and the Warner Bros film studio, has in the past few years resolved regulatory inquiries into AOL's accounting and has had to write down millions of dollars in goodwill, reflecting the slump in the value of internet companies. The interest in AOL from some of the US's largest technology companies comes as Mr Parsons is overseeing a drive to transform the group.

AOL is being changed from an old-fashioned service for accessing the internet into a portal where customers can click on to news and entertainment. Advertisers are flocking to internet portals because they are attracting growing numbers of viewers.

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