AOL shares are being spun out of Time Warner. For every 11shares of TWX stock owned, 1 share of AOL will be given. This equates to about 106million shares of AOL outstanding, for a market value of $2.5billion. With Free Cash Flow of about $1billion expected this year and next, the shares are a BARGAIN.
Don't get me wrong - AOL/TWX was likely the biggest merger failure in HISTORY, and AOL's business is a wreck, in a downward spiral that will be difficult to correct. That said, I compare this situation to one I saw with Western Digital (WDC) last fall. People were absolutely FREAKED about the threat to WDC from solid state drives, or flash drives. It was a decent argument, but my point was that WDC was trading at a level where you would literally make your money back in Free Cash Flow before that argument over competitive products was even completed.
Could be a similar case here, with a potential Free Cash Flow Yield of 40%. You could buy the company outright and make your cash back completely, while people still argue about AOL's viability.
(Disclosure - long AOL as of a few minutes ago)
Copyright 2009 AlphaNinja