Google will become the only shareholder in AOL other than Time Warner and will have "certain customary minority shareholder rights, including those associated with any future sale or public offering of AOL," the companies said in a statement.
Under the new global advertising partnership, more of AOL's content will be available to Google Web crawlers, display advertising will be expanded throughout the Google network and Google will provide AOL with undisclosed marketing credits.
The deal also calls for the creation of an "AOL Marketplace through white labeling of Google's advertising technology--enabling AOL to sell search advertising directly to advertisers on AOL-owned properties."
The companies said they will collaborate on online video search and showcase AOL's premium video service within Google Video, as well as allow Google Talk and AIM instant messaging users to communicate with each other.
Google derived about 10 percent of its advertising revenue, roughly $400 million, from its partnership with AOL through sponsored listings within its search engine in the first three quarters of this year. The companies first partnered three years ago.
The deal, details of which emerged last week from unidentified sources, leaves Microsoft out in the cold after months of negotiations with Time Warner over AOL's search business. Microsoft was on the verge of striking a deal before the surprise turn in Google's favor late last week.
The reported Google-AOL deal would give AOL a valuation of $20 billion. Time Warner shares closed at $17.74, giving it a market capitalization of nearly $82.7 billion, compared with Google's $429.74-per-share closing and more than $127 billion market cap. Google had 48 percent search market share in October, compared with 22 percent for Yahoo, 11 percent for Microsoft's MSN and 7.2 percent for AOL, according to Nielsen/NetRatings.
Billionaire Time Warner shareholder Carl Icahn, who controls 3 percent of Time Warner shares--some owned directly and some controlled indirectly through a fund--and has been organizing a proxy battle for control of the company, wants to split AOL off. He warned the Time Warner board on Monday against making a "disastrous" and "short-sighted" deal with Google that would preclude a merger or other transaction between AOL and some other company.
