LONDON and NEW YORK- The Carphone Warehouse Group PLC (LSE:CPW.L) and Time Warner Inc. (NYSE: TWX) have reached agreement for Carphone Warehouse to acquire AOL’s Internet access business in the UK for a cash consideration of £370m ($688m) funded via an extension of existing debt facilities. Completion is subject to EU competition authority clearance and is expected to take place by 31 December 2006.

Under the agreement, Carphone Warehouse will acquire AOL’s Internet access customer base in the UK as well as the supporting management and infrastructure (the “Access” business). For its part, AOL will provide co-branded portal, content and other audience services and will manage the online advertising sales for Carphone Warehouse’s combined broadband customer base through a revenue-sharing agreement.

About AOL in the UK
AOL is one of the largest Internet service providers in the UK, with approximately 2.1m ISP customers. On completion, it is anticipated that this will comprise 1.5m broadband customers and 0.6m dial-up customers. In the year to December 2005, the assets to be acquired generated revenues of £442.1m and an operating profit of £14.1m. Gross assets at December 2005 were £77.9m.

Rationale for the transaction
Since 2003, Carphone Warehouse has been building a significant presence in the UK residential telecoms market. Through organic growth and acquisition, it has grown to a base of 2.7m voice customers in under four years, giving it approximately 11% of the residential calls market. In April 2006, Carphone Warehouse launched a major new initiative, offering free broadband to its voice customers, and has attracted 625,000 applications for this service over the last six months. The acquisition of the Access business will give Carphone Warehouse an enlarged broadband customer base of approximately 2m customers, making it the third largest broadband provider in the UK. Over time, the additional scale is likely to create significant operating efficiencies in relation to network infrastructure and marketing costs. In addition, the commercial agreement in relation to the Audience business provides Carphone Warehouse with a ready-made platform via which it can generate material incremental value from its large and growing customer base. The management time and investment cost involved in replicating the Audience business model would be significant, so the structure of the deal allows Carphone Warehouse to accelerate its plans without the requirement to build further internal resource. For Time Warner and AOL, this transaction marks an important step in positioning AOL’s audience business to take further advantage of the rapid growth in online advertising – in keeping with AOL’s overall worldwide strategy. In addition to exiting its Internet access businesses in Germany, France and the UK, AOL will now have a stronger platform for providing portal, content and other audience services, on a stand-alone as well as a co-branded basis, and managing online advertising sales.

Financial impact
The total cash consideration is £370m, of which £250m will be paid on completion and the balance paid in three instalments over the following 18 months. The consideration is being funded by an extension of existing bank facilities.

The transaction is due to complete by 31 December 2006 and is subject to EU competition authority clearance. At this stage it is anticipated that the acquisition will increase current year pre-tax profits by approximately £10m (subject to completion by 31 December 2006), and next year’s pre-tax profits by £30-40m.

Commenting on the acquisition, Charles Dunstone, CEO of Carphone Warehouse, said:

“The acquisition of AOL’s UK Internet access business is transformational for our broadband business. This deal gives us significant scale to complement the rapid organic growth of our free broadband proposition. In addition, the joint development of AOL’s already successful audience platform will bring us new advertising and content revenues in a proven and low risk manner.”

Dick Parsons, Chairman and CEO of Time Warner, said: “This agreement completes the restructuring of our AOL Europe businesses that both advances AOL’s strategic transition to an advertising-supported business model and underscores Time Warner’s commitment to shaping its portfolio of assets to drive the greatest growth possible. On both fronts – as well as across our company – we’re successfully building critical momentum to the benefit of our shareholders. As a leading provider of audience services in Europe, AOL will be better positioned than ever to continue to grow a cohesive online advertising business across a region that’s key to our future progress.”

Jon Miller, Chairman and CEO of AOL LLC, said: “For a decade, AOL has played an important part in the growth of the online medium in the UK. Under the partnership announced today, AOL will expand the size of its audience in the UK as a Web-services business. This is an ideal outcome for AOL, for Time Warner, and the customers we serve.”

Contact Info:

Carphone Warehouse
For analyst and institutional inquiries
Roger Taylor 07715 170 090
Peregrine Riviere 07909 907193

For media inquiries Vanessa Godsal 07947 000 021
Anthony Carlisle 07973 611 888
Citigate Dewe Rogerson 020 7638 9571

AOL Corporate Communications
John Buckley (703) 265-3289
Tricia Primrose Wallace (703) 265-2896
Anne Bentley (703) 265-2825

Time Warner Corporate Communications
Edward Adler (212) 484-6630
Susan Duffy (212) 484-6686

Time Warner Investor Relations
Jim Burtson (212) 484-8719
Chris Clipper (212) 484-6297
Mark Holmes (212) 484-8206