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AOL Europe's future under scrutiny

Graeme Wearden ZDNet.co.uk

Published: 08 May 2006 15:45 BST

AOL's European operation faces an uncertain time ahead, with parent company Time Warner hiring Citigroup to conduct a review of the ISP's future strategy.

It is understood that AOL Europe told employees last week that a strategic review was under way, led by the banking firm.

The review is unlikely to consider whether AOL Europe should acquire another company, according to industry sources. Some reports have claimed that Time Warner may be considering to sell some, or all, of AOL's European assets, but insiders say that the review will probably concentrate on potential partnerships.

Last year, Google agreed to pay $1bn (£565m) for a 5 percent stake in AOL, which gave AOL a valuation of $20bn. This deal proved unpopular with some, including billionaire Time Warner shareholder Carl Icahn, who attempted to block the deal.

AOL Europe maybe hoping to secure a similar partnership, although an advertising company is would make a more likely target.

"AOL Europe can bring users, and traffic and content, which could all be valuable commodities in the online advertising space," said one source close to the review.

The online advertising market is growing fast. Last year, over £1bn was spent on Internet advertising in the UK. AOL Europe saw its income from online adverts rise 35 percent in the first quarter of this year, compared with last year, it is understood.