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Google may trump Microsoft on AOL

Time Warner would get $1b for 5% stake

Time Warner Inc. ended talks with Microsoft Corp. yesterday and entered exclusive negotiations with Google Inc. over a $1 billion investment and a broader advertising partnership with America Online, executives close to the talks said.

Shutting out Microsoft sets the stage for a high-profile agreement between two titans of the Internet. Under the deal, expected to be disclosed as early as next week, Google would get a 5 percent stake in AOL, implying a $20 billion value for the unit, said one official with direct knowledge of Time Warner's negotiating position.

Google, which operates the Internet's dominant search tools, also agreed to highlight AOL's Web properties as sponsored links and integrate AOL's video clips in its fledgling Google Video service. In exchange, AOL will continue providing Google's search engine to its subscribers.

Officials described the negotiations on condition of anonymity because no agreement has been formalized. Time Warner's board meets in New York next week.

The deal shows that Google is willing to pay to preserve its lucrative relationship with AOL and prevent Microsoft from becoming a bigger provider of Internet search tools.

A deal between Microsoft and AOL would have made Microsoft's own advertising network more attractive.

The struggle over AOL reflects the larger competitive landscape between rivals Google and Microsoft, said Internet analyst Scott Kessler of Standard and Poor's.

AOL is Google's biggest customer, accounting for $420 million, or about 10 percent, of Google's revenue during the first nine months of this year, according to regulatory filings.

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