AOL is looking for a faster exit out of the headache known as Patch, its localized news service, say sources familiar with the company's thinking. AOL is looking at hiring a banker to sell the properties outright or find a strategic partner, says one source.

In September, AOL announced that it would lay off as many as 500 employees and shut down hundreds of the 900 Patch sites in the network in an effort to make the properties profitable by year-end. The Patch layoffs got a lot of bad press. Just prior to the publicly-announced layoffs, AOL CEO Tim Armstrong fired one employee on the spot during a company meeting.

One source, with close ties the New York's media deal-making community, says some large media conglomerates including newspaper chains might be interested in some of the Patch assets. And M&A bankers are moving in, looking to get a piece of any action -- especially if AOL decides to sell the whole thing. The source says it's looking like this is a real possibility.

Another investment source, speaking off the record, said investors might be "relieved" if Patch were sold, lifting a cloud over AOL. That is giving the company more motivation to act. In fact, the general feeling among a number of people I spoke to who have AOL investment interests in mind said they'd rather they just got rid of the thing.

Financial analysts say that AOL has been open to all options since a drastic move in September, when AOL announced the big cuts in Patch.

Options could include accelerating the cuts, taking on a media partner or investor, or selling the Patch assets outright.

"Looking to sell it or find an investor, that would be consistent with what Tim [Armstrong said]" on the September conference call, said Laura Martin, senior media analyst with Needham & Co., in a phone interview this morning. "But it wouldn't surprise me if they were looking for a strategic investor." Martin said she had no specific knowledge of banking activity or an imminent sale.

Patch has been a controversial project, especially given its close ties to Armstrong, who started the company himself and then sold it AOL, where he was just becoming the new CEO, in 2009. This set Armstrong up for lots of questions, given the appearance of self-dealing.

The Patch network has been losing millions of dollars since, and never reached its promise of being a leading, profitable online local news network.

AOL shares rallied 1.5% today, up .49. They are close to flat over the last month. The company was contacted for comment but has not yet replied.

(Disclosure: No position in AOL.)

This entry was posted on Friday, October 11, 2013 at 15:59 pm and is filed under Digital Media, Investing.
Keywords: Patch, Tim Armstrong, M&A, Layoffs

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