AOL shares fall on first trading day after spinoff

AOL Inc., the Internet company spun off from Time Warner Inc., fell on its first day of trading after the separation.

AOL, based in New York, declined 15 cents to $23.52 in New York Stock Exchange composite trading. The Standard & Poor's MidCap 400 Index, which includes AOL, gained 0.6 percent to 700.55.

The company was passed over for the Standard & Poor's 500 Index. Because S&P 500 Index fund managers can't own stocks outside the index, they will have to sell about 17 million shares of AOL, according to Todd Rethemeier, a New York-based analyst with Hudson Square Research. The change from being part of a large company to a standalone mid-market entity may lead to initial volatility in AOL's shares, he said.

"I'm much more focused on what we're going to be doing this afternoon when we go back to work" than on the stock price, AOL Chief Executive Officer Tim Armstrong, 38, said today on a conference call. AOL's separation "marked a rebirth," said Armstrong, who rang the opening bell at the New York Stock Exchange.

Time Warner, the New York-based owner of the Warner Bros. studios and CNN, spun off AOL nine years after a $124 billion combination that triggered record losses. Time Warner shareholders received 1 AOL share for every 11 shares they owned. Time Warner rose $1.23, or 4.2 percent, to $30.45.

'Immediate Weakness'

An Internet pioneer founded in 1985, AOL now faces declines in subscribers to its online access service and in advertising revenue.

"AOL's a turnaround and something we're not hiding from," Armstrong said in a Bloomberg Television interview. "The opportunities are much bigger than the challenge."

There may be "immediate weakness" in AOL as Time Warner holders who invest in large-capitalization or dividend-paying companies sell their AOL shares, David Joyce, an analyst with Miller Tabak & Co., said today in a note. He initiated coverage of AOL with a buy rating, saying it's "very cheap."

S&P 500 funds will probably sell 5.3 million more AOL shares than S&P MidCap 400 managers will buy, Douglas Anmuth, an analyst with Barclays Plc, estimated in a Nov. 24 report.

AOL celebrated its independence last night with a party for employees and advertisers on the floor of the New York Stock Exchange -- with guests including Sean "Diddy" Combs and Harry Connick Jr.

AOL had been trading in the so-called when-issued market since Nov. 25. Today's trading gives it a market value of about $2.49 billion.