To: Modano who wrote (1 ) 12/2/2001 4:16:21 PM From: Forrest Read Replies (1) | Respond to of 41369 BARRONS Back in early October, Doug Kass, hedge-fund manager par excellence (Seabreeze Partners is the fund's monicker), laid out in this space why he was bearish on AOL Time Warner. At the heart of his negative take on the mammoth media outfit was the conviction that online subscriber growth was declining, a surmise affirmed by third-quarter numbers. But a more immediate reason for his stance was the likelihood that AOL would have to pony up a very big bunch of bucks to buy out its partner, Bertelsmann, in their money-losing joint venture AOL Europe. The obligation is in the form of a put granted Bertelsmann in the halcyon days of late '99-early 2000, when the Internet was still all the rage. Back in October, we noted that analysts couldn't give a hoot about the possibility that AOL would have to scrape up a couple-plus billion in hard cold cash to hand over to Bertelsmann. And since then, they've been too busy being wild about Harry Potter to make even passing mention of the fast-approaching deadline for the company to meet its partner's put. Doug reminds us, though, that the deadline is a scant couple of weeks off and it's no longer merely hypothetical. For in a recent SEC filing, AOL revealed that it had received word that Bertelsmann, indeed, would exercise its right to sell AOL its 49.5% stake in AOL Europe for between $6.7 billion and $8.25 billion. That's a nice piece of change, and even nicer in view of Doug's estimate that all of AOL Europe at this point is worth maybe $2 billion. Of the purchase price, $2.5 billion is payable in cash and the rest in AOL stock or a combination of cash and stock. The first installment due Bertelsmann, incidentally, covers 80% of the total and the balance must be paid by July 1. Chances are, even though the shares remain far below their lordly peak, AOL will choose to issue as much new stock as it can to defer the Bertelsmann tab. What that implies, of course, is dilution. Last we looked, in any case, AOL didn't have $2.5 billion or anywhere close to it in the corporate till. However, the company assures that coming up with the dough is no sweat, noting that it can always, among other things, borrow what it needs from banks, float commercial paper or tap the capital markets. Or who knows, maybe Harry Potter can exercise his wizardry and conjure up the money.